STEER & CO'S 2021 RESIDENTIAL WRAP UP
Category Advice
Some may say that the end of November is too early for a year's wrap up, but others may relate to why we may be ready to "file" 2021 away in the archives and look ahead towards 2022! I say that with a pinch of salt, as the year certainly hasn't been all doom and gloom for us at Steer & Co.
In the context of residential property management, the biggest challenges of the year have been credit control and vacancies. From a credit control perspective, the last 12 months have seen a significant number of tenants struggling to pay their full rental on or before the first of each month. This was generally brought on by the knock-on effect of the restrictions relating to the Covid-19 pandemic. With industries such as tourism and hospitality hardest hit, many of our tenants are only now starting to receive a regular monthly income after many months of uncertainty. With our offices in Long Street, the heart of Cape Town's CBD, we've witnessed first-hand, the indicators of a struggling economy: coffee shops and eateries closing their doors, no Red Buses touring the City, no tourists visiting Green Market Square with only a small handful of stalls open, the once thriving Edgars on St George's Mall closing its doors and (historically) prime CBD development sites with no development activity.
I am encouraged to say that this has all changed within the last two months or so, with inviting new coffee shops and eateries opening, the St George's Mall Thursday food market having reopened on Thursday 18 November 2021, the hum of the Red Buses at least half-filled with local and international tourists again, and demolition on The Tokyo site nearing completion, as well as the launch of the exciting Fynbos development planned for Bree Street. The infamous 'orange clad' parking marshals are strutting up and down our CBD pavements again, which will free up much of the parking that has been dominated by employees taking advantage of the free parking in the City. This should encourage more visitors to the City, which has a positive effect on the local businesses.
The year started out with the highest residential flat vacancies (12,1% nationally per the Rode Report 2021:1) seen in many years, especially in the City Bowl and Atlantic Seaboard. We're so happy to say that there has been a significant turnaround in the last two months, with almost no vacancies in our Atlantic Seaboard and City Bowl properties. We attribute our competitive social media presence to this success, as well as a realistic downward adjustment of rentals, which has been met with an increase in demand, also driven by industries such as photography, events planning, tourism and hospitality getting back to work with restrictions opening up due to low infection rates (for now). Vacancies within our Northern Suburbs portfolio have also dropped significantly, with the highest vacancies seen in our Southern Suburbs portfolio.
While these signs are encouraging, we certainly always have work to do in the residential property industry as the market is constantly changing. We try to anticipate and prepare for these changes so that we can best serve our clients through the rollercoaster of investing in residential property.
The big question as we close out 2021, is whether tenants are ready for annual rental increases again? These haven't been seen since late 2019 with 'rental reductions' being far more prevalent over the last 18 months or so. With new leases signed over the past 18 months being at significantly reduced (since 2019 levels) rentals, it would seem that some rentals warrant a nominal increase of between 5 and 8% depending on the starting rental. With vacancies down, rentals down and encouraging signs of people getting employment again, some landlords may be able to consider nominal rental increases again.
One needs to, however be cautious as, although there is evidence of people finding employment again (I've seen queues of casual workers with CV in hand, applying for jobs that are in demand again) this gainful employment will only mean being able to work towards catching up on debt after having no earnings for so many months. Slow and steady wins the race.
With Covid cases at their lowest numbers since being hit by the 'Third Wave', we encourage all our readers to remain cautious over the festive season, so that we can continue being able to move about more freely, giving businesses a much needed chance to continue operating in the tourism and hospitality industries especially. Just keep those masks on.
As a year full of challenges draws to a close, it is a good time to count one's blessings and, in the words of our Desmond Tutu "do your little bit of good wherever you are; it's those little bits of good put together that overwhelm the world."
Author: Nina Vass