Taking the Pulse of the KZN Industrial Property Market
The arrival of Covid-19 and the resulting lockdown plunged us into the second recession in two years. As we enter a new normal, there's no denying that the Industrial Property sector is feeling the pinch, but what do the experts say?
The Pandemic and subsequent Lockdown brought a whole new reality to life as we know it, as we faced catastrophic job losses, business freefall, and a consumer cash crisis. Covid-19 has changed the way we work, the way we shop, and the way we play.
For some insight into the current health of the Industrial Property market in KZN, we caught up with Tristan Rasmussen, CEO of one of KZN's top Industrial Property firms, Rasmussen Properties.
"We were already in a slump, with 2019 showing the lowest growth in GDP since the 2008-2009 global financial crisis. Covid and the lockdown compounded an already struggling economy, forcing massive unemployment and unprecedented interruptions to operations."
Tristan believes that the drop in the Repo rate, resulting in an unprecedented low lending rate will have a positive effect on the market, but it will depend on individual confidence in the country.
Ideally, Investors should look for opportunities when the recession is at its worst, but pin-pointing the right stage of recession can be difficult. It's a quandary for stressed sellers too, who obviously want to get the best price possible, but also don't want to lose the chance of a sale.
"If I was an investor, I would be looking for opportunities right now" Tristan stressed. "That's what's happening. There are a lot of properties on the market, and there are people who have the funds to invest. An anomaly in the Property business is that a good broker will benefit in both the good and the bad times.
"We have to take each individual case on its merits; some clients are in financial trouble, others are in need of advice (which they don't always take), others are in the market for good investment opportunities. Our job is to make the perfect marriage.
"For example, a client who has a cashflow crisis can release equity with a sell and leaseback option, whereby he can sell his premises to an investor, and rent it back for 5 or 10 years. It's an attractive option for an Investor, who can make a 8 to 10% return on the investment."
The lockdown forced a general technology upgrade as employers and employees adapted to a virtual work world. It's been a relatively successful adaptation, and begs the question - are we witnessing a trend change in the way we work? And what does this spell for the property industry?
Having reduced office premises some time ago, Tristan is comfortable with the virtual work space. "I have seen a definite change in the market. We are fortunate, in that Rasmussen brokers have been operating efficiently from virtual work spaces for some time. We have regular meetings, team building and get togethers, but our day to day operations are essentially home based now, and it makes a lot of sense."
He sees this as a growing trend. "I believe big companies have recognized that they do not need huge premises catering to 500 plus staff. A core of 50 to 75 and the majority working from home is very effective. Technology has benefitted from the lockdown, but it has resulted in a glut of office space. We are not going to see the high returns of the past, in that sector.
"If I were in that business, I would look at re-purposing, converting office space to residential. Not all office blocks lend themselves to that option, but there are some beautiful large business premises that could be converted into pristine residential or dual purpose projects."
Retail and Commercial property groups have suffered the brunt of the Covid knock and Tristan believes there's worse to come for Retail, given the definite trend shift to online shopping. He has faith in the Industrial Property sector, however.
"As long a country is functioning, the Industrial Property sector will function - it goes hand in hand."
With over 25 years in the Industrial Property Segment, Tristan has steered the company through two previous recessions. He is recognized as the guy with his finger on the pulse of the industrial property market in KZN.
"There was a lot of uncertainty in the country in 1990, with the unbanning of the ANC. Many people sold up and emigrated. Properties were selling at rock bottom prices. Investors picked up properties that gave them a 20% rate of return."
By 1994, South Africa was emerging from three years of recession. Within two years of Nelson Mandela's Presidency, the growth rate rose above 4% and South Africa was well on the road to recovery.
"It was a good lesson," said Tristan. "The market is more savvy now. I don't think we will ever reach a 20% cap rate again, but industrial property is still a good investment."
The second recession followed the Global Financial Crisis of 2007-2009.
"In the 2008-2009 South Africa recession, the economy contracted by 1.5%, close to a million jobs were lost and manufacturing shrank by 20%. On the other hand, it was a good opportunity for investors and many saw the gap and invested in industrial property. Their returns have been good, albeit lower than the 20% realized in the 90's."
Looking back over 25 years, Tristan describes the Industrial Property sector in KZN as Cyclical but Resilient.
"From experience, we know that there will always be fluctuations in the property market, depending on the health of the Economy. The recession is tougher this time, but if we stick to the principles, we will make it through."
The success of Rasmussen Industrial Properties lies in the expertise of its brokers, a strong team of professionals, who live and work by the edict "Property Personalized" a motto set by Tristan on the day he launched Rasmussen, and the reason why the logo of Rasmussen Industrial Properties is his actual thumb print!
"We have a highly experienced team. Most of them are ex teachers. In my experience, ex teachers make the best brokers - they listen, they study, they research, they have a plan, they give attention to detail. We work according to our principle 'Property Personalized.' It means, experience, honesty, integrity, follow through, and an emphasis on service levels. You have to listen to your client. Listening is a lost art. You have to be on the ball. You can't postpone things to the next day.
"A lot of our business is repeat business, which is proof that we are doing things right. One of our senior agents, Mike Gowar, also an ex school teacher, has a track record of 75 to 80% repeat business or referrals."
Property is a difficult business. "It's not the career for someone wanting to make a quick buck. But if you stick to the principles, you can win at this game."
"We are going through interesting times, and I am confident."