It used to be location first second and third when it came to picking a good property but as a result of Covid-19, innovation is likely to be just as an important factor for years to come.
Riyaad Khan, Transactor in the Real Estate Investment Banking team at RMB, said the full extent of Covid-19 on the South Africa real estate sector in the long term is unknown.
“But what we do know is that old rules of property have evolved from location to location and innovation.”
Covid-19 has accelerated certain trends such as the adoption of work from home policies and the rapid rise in e-commerce and has further highlighted the need to protect the integrity of supply chains.
“One of the stand-out trends likely to change the real estate sector is the innovative re-purposing of obsolete, older, spaces into new offerings.”
He noted that in South Africa and around the world, the conversion of redundant office space into alternative uses such as residential accommodation, modern co-working spaces and storage will prove important to property owners looking to re-imagine space to cater for the different needs of its existing and potential users.
“After years of rapid expansion pre-Covid, there is now a lot of property stock in commercial nodes such as the Rosebank-Sandton corridor as large corporates like Sasol and Discovery – and many of the large law firms opted for new headquarters – leaving behind old space that is no longer fit for purpose.”
Financially, consolidating several smaller offices into a single, purpose-built facility made sense as the efficiencies of having a central campus and the benefit of technology driven reductions in electricity and water consumption proved to be cost neutral or even cost saving.
“The consequence is that there is currently a lot of commercial property in South Africa that needs to be ‘urgently repurposed’ or risk obsolescence” Khan said.
Property owners are already repurposing properties but this is just the start as demand for commercial space is likely to drop even further as a result of systemic fall in demand from the pandemic.
The Atholl Yards development in Sandton for example was an old office building that was recently converted into quality and affordable residential rental units.
“In this case, an office building which was vacant for a number of years is now home to a community of young professionals on the doorstep of the Sandton CBD. There are similar examples in nodes such as Sunninghill and Randburg where most of the old commercial space is being converted into affordable accommodation.”
Retail space is also changing with retailers potentially looking to reduce their floorspace which will create unused space in shopping malls.
Said Khan: “Large shopping centres were already allocating more space to entertainment and experience-based offerings before the pandemic and we now expect this trend to continue.
“It is very possible that we will see more non-traditional retail being incorporated into malls. Internationally this is a growing trend with major brands such as Tesla opting for a large footprint in high visibility malls across the globe. Redundant parking spaces are being converted to storage spaces, vehicle service centres and increasingly used as exhibition space for events.”
Khan concluded by saying that shifts in real estate demand, particularly when driven by an event such as Covid-19, occur much faster than the markets response to supply.
“It is in this window of opportunity where the most innovative owners and operators will thrive. “We saw this play out in the wake of the global financial crisis and we expect similar this time around.”