The impact of the first SONA under the new Cabinet to the commercial property sector
June 25, 2019

As with the budget speech earlier this year, SONA 2019 was always going to be a tough speech to deliver. Since President Ramaphosa addressed the nation during SONA in February, there has been continued negativity around State-owned Entities (SOE) bleeding billions, Eskom becoming an increasing threat to our economy, internal fighting and instability within the ANC and more caution from ratings agencies.

We asked our CEO John Jack for his thoughts on how the first SONA under the new Cabinet will impact the commercial property sector.


It’s no surprise that the Eskom crisis is the number one concern for any investor looking at South Africa, and the business sector was waiting with bated breath for clarity around this during the SONA address.

Little was given of Ramaphosa’s plans which he announced in February to restructure the power utility into three entities, being generation, distribution and transmission; and employees looking to continue working in those sectors should undertake a Business CPD course. Ramaphosa did however announce that Eskom will receive a larger portion of the R230 billion support promised in February’s budget sooner than expected so as to alleviate the SOE’s financial crisis. The Energy Availability Factor (EAF) has improved significantly post elections, not dropping below 70% since the beginning of May. This doesn’t mean the problem is fixed but it does give us some breathing room. However we need an EAF of 75% and above to support moderate growth projections. This funding will hopefully ensure no interruptions or reduced supply which gives manufacturers and the economy as a whole great comfort. We don’t see anyone making any immediate expansion moves until we get a clear picture of who will be appointed to re-structure the facility and how they plan to do so.

During the days that followed the general elections, we undoubtedly noticed a pick-up in activity and trading in the commercial property sector. Our phones were ringing off the hook. We expect a little of the same following the recent SONA, but we need to remember that real estate is typically a longer investment strategy of 5 to 10 years so investors consider the longer horizon when deploying capital into the sector.

The “Master plans” for textiles, steel, clothing, gas, chemicals and renewables

The plans to develop these areas is excellent news for the commercial property sector. Growing these industries will drive demand for properties in key nodes around the country that cater towards these sectors. As more focus is put into these industries and as they attract more investment, so can we expect to see more occupiers taking up space which will naturally drive up rental prices.


Ramaphosa has been given a tough task to improve economic growth, particularly due to the fact that South Africa’s GDP for the first quarter was the worst drop since the same period in 2009 during the global financial crisis.

What was positive what that the President confirmed that the private sector has committed R840 billion in 43 projects which will stimulate growth in numerous sectors, not to mention the extensive job creation this will bring. The State confirmed it will build a pipeline of investments to be showcased at the second investment conference to be held later this year, which is very promising considering that R300 billion was raised as a result of the inaugural investment conference held last year. This will have a significantly positive impact across the commercial property sector.

The discussion surrounding a smart city is an interesting one but didn’t seem to give much insight as to what that actually means. Johannesburg CBD strikes us as a massive opportunity to re-develop the once iconic city now met with significant challenges post the business district relocating to Sandton decades ago. Inner city landlords will be listening carefully to see what incentives may be coming their way. Crime and grime is rife in the inner city with only certain precincts managing to get it right such as Ghandi square, maintained largely by a single prominent landlord.

The anticipated interest rate cut next month will most certainly be a welcome breather for landlords sitting on vacant properties who are still supporting their bonds. Direct property holders would be excited to see this cut as many are seeing decreases in rental income as opposed to increases,  so less capital outflow would make a significant impact.

It was interesting to note that the State aims to reduce the cost of doing business by reducing export tariffs and making rail transport more efficient and competitive, while at the same time making it easier and quicker for new companies to be registered. By removing complicated and lengthy regulatory processes and reducing the high cost of international companies doing business in South Africa, we can expect far more interest from investors who have had their eye on the local market. More investment into the country means more into the economy, which of course is positive for the entire property sector.

Listed Property Sector

The South African Property Owners Association convention held in Cape Town last week highlighted the difficulty the listed sector is having raising capital and speculation of its attractiveness for investors as a whole. This creates opportunity for private investors and owner occupiers who don’t have to compete against the funds for stock brought to market. If the investment strategy that Ramaphosa has planned gains traction, we could see a swing back  to investors focusing on the REIT space.

Land Reform

Ramaphosa said faster economic growth also requires accelerated land reform in rural and urban areas and a clear property rights regime. This will continue to be an area of concern for investors, as it has been for many months. Not much further clarity was given by the President which investors will be wary of.

He did confirm however that R3.9 billion has been allocated to the Land Bank to support black commercial farmers, which may help drive movement in the agricultural sector.

Consumer Price Index

Last week Stats SA release figures confirming that the annual consumer price inflation was 4,5% in May 2019, up from 4,4% in April 2019. Two of the main contributors to the 4,5% annual inflation rate were food and non-alcoholic beverages which impact consumers directly and thus disposable income that could be directed to the rest of the retail sector, which is already under significant pressure. We have seen several Edcon shops downsizing and others closing altogether. This is not an isolated case as we see it across the entire retail occupier grouping.

Policy uncertainty 

Policy uncertainty leads to poor confidence, low growth and few jobs.  SONA carried a number of positive messages as anticipated but very little in the way of a concrete action plan. This needs to follow swiftly to give business confidence to invest.

All of that said, with a general election and a SONA under a new Cabinet behind us, we suspect that the market will start to see more movement from both investors and occupiers as they begin to transact with marginally increased confidence. The transactional growth we saw after the election has continued and we don’t expect this to slow down any time soon.