Commercial and Industrial Property in 2024 - Prepare for Opportunities
Category From the Director's Desk
There will be opportunities in 2024... for those who are prepared.
Commercial and industrial landlords continue to feel the pressure from the extended interest rate hiking cycle, as well as increased upward pressure on operating costs due to rising insurance premiums, on-going loadshedding, local government service delivery challenges, climbing municipal rates, and increased costs securing their properties and tenants.
Likewise, the tenants (almost across the board) continue to face major financial pressure with tightening margins and instability. This of course worsens the prospects for landlords.
This pressure will result in the price gap between buyers and sellers narrowing, especially where landlords are over-geared and have weak tenants and/or cash flow. A scenario is already playing out where motivated sellers in certain regions and sectors have begun reducing their asking price and this will continue to be the case for some time.
Those buyers in strong financial positions will certainly come across opportunities and if they have carefully priced in the above negative factors, they should be able to secure investments at attractive risk-adjusted returns, and hopefully benefit from conservative interest rate cuts during 2024 and beyond.
Advice to C&I landlords who are anticipating a level of financial distress.
Work with your tenants:
If your tenant is struggling, meet with them and agree on a payment plan for any rental arrears, as well as the monthly rental and other costs going forward. Some rental is better than none and this approach will buy you some time to see if your tenant's situation improves while planning for a scenario where it doesn't.
Continue to maintain your properties:
A carefully set-out maintenance budget, focusing firstly on essential items and when funds allow on the more regular preventative maintenance items, will not only protect your tenancy, but also preserve your property value and hopefully avoid or minimise any major capital expenses in the years to come, while your finances begin to recover. The last thing you should do is stop maintaining your property entirely.
Property management:
Partnering with a reputable property manager will allow you to effectively strategize your way out of most financial difficulties through careful cash flow management, collection of rentals and arrears, utility recoveries, and tenant retention and replacement if needed.
Get creative:
It may be worth investigating creative ways of re-tenanting vacant premises or structuring leases to benefit both landlord and prospective tenants who may be faced with challenges. Be sure to seek guidance from professionals in this regard, and transparent communication between all parties is key.
Talk to your bank:
Rather than waiting for your bank to call you, give your bank a heads up if you are under financial pressure, and tell them about your plan to navigate this difficult period. Your bank may be willing to restructure your loan and reduce your monthly repayments, but normally only if you have been proactive in your approach and exhausted all your options.
For expert advice on your C&I property requirements in Durban, be sure to contact Maxprop.
Author: Maxprop