Landlords on securing business

Landlords in the commercial property sector are strongly canvassing every potential tenant enquiry available to them in order to fill rising vacancies.

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As many tenants downsize their current office or building space, they are increasingly turning to brokers to help them find the right premises.

“Commercial segments like the industrial, office and retail have seen a sharp rise in vacancies. With rising office vacancies across the African markets, landlords are more friendly to tenants to secure deals,” says David Green, CEO and founding shareholder of ProAfrica Property Services.

According to Green, “In some cases, tenants resist rental deals charged in US$ and prefer local currency. Landlords are having to be creative and innovative in order to attract and retain tenants.”

Green explains that the direct impact of Covid-19 has seen substantial downwards reversion of the growth rates of almost every African economy. The weak leasing market will be with us for some time and vacancy rates will continue to rise.

Green says the deterioration of local municipal infrastructure and failing basic service delivery to all property across South Africa is a challenge that is facing the sector.

“This has a dire effect on the real estate development market and the construction sector. Currently, metros are also pushing to add development levies as a tax on new developments, which may well be the final straw for developers.”

Green points out that the erosion of real estate values, including the listed property sector, has led to a negative direct investor market sentiment.

Additionally, landlords, property owners and tenants have to deal with increasing rates and taxes, as well as rising water and electricity tariffs.

Navigating the African commercial property markets

Green says that with 54 countries, the African markets have different real estate dynamics, legal frameworks, property laws, language differences and local customs.

However, real estate markets in larger cities generally have world-class property investors who understand the requirements of the international tenant market.

“While transaction methodology remains the same, the challenge is helping tenants understand the differences and nuances of each market,” says Green.

David Green

Green adds that not all African markets are equally sophisticated or transparent when it comes to the availability of market data. In Lagos Nigeria, for example, he says that nearly 40% of quality office space is available for leasing and the level of transactions taking place are negligible.

In some markets, landlords are private individuals and not corporate real estate investors or listed property funds, as is the case in South Africa.

“Obtaining detailed property information, such as plans and other local approvals and compliances, from these sellers is difficult.”

Green says that in African markets, proving the ownership or the landlords’ title to the property under consideration by the tenant is usually the starting point. Equally, tenants are keen to understand what types of properties and services are on offer, and the location of their clients or competitors.

“Importantly though, landlords are becoming increasingly flexible in negotiations with potential tenants. They are offering substantial benefits to tenants and their transactional advisors in order to secure deals on vacant space,” says Green.

Moreover, landlords have to deal with their teams’ limited ability to turn letting deals around quickly, thus risking deal losses. “This is something they cannot afford in this difficult market,” Green points out.

“Tenants are taking advantage of the subdued market to adjust existing leases by negotiating more flexible lease extension or renewal terms – in some cases, even downsizing or upgrading and relocating to better-quality accommodation.”

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Edited by Gudrun Kaiser

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