As the Reserve Bank prepares to announce changes to interest rates on Thursday, the nation holds its breath, uncertain about the monetary policy committee’s decision.
With varying speculations from economists, the announcement could bring either a 25-basis point increase or the committee may choose to hold fire.
Consumer inflation data showed a favourable decrease, easing to 5.4% in June, lower than the 6.3% recorded in May.
The drop in inflation supports the case for the central bank to take a pause in its interest rate hike cycle.
The June inflation figure falling below the bank’s target ceiling for the first time in 14 months can be attributed to lower food costs.
Nevertheless, this has not deterred the likelihood of a interest rate hike, with the central bank possibly factoring in broader economic considerations.
John Jack, CEO of Galetti Corporate Real Estate, shared valuable insights regarding the potential interest rate hike’s implications on the commercial property sector.
He acknowledged that the majority of companies have successfully returned to work, which has strengthened the position of commercial landlords compared to the previous year.
Cape Town’s commercial property sector is currently experiencing a remarkable boom, with very few vacant properties available.
This high demand has resulted in improved rental prices and better returns, particularly in the warehousing sector, as companies continue to shift their operations to Cape Town.
Amid these positive developments, Jack expressed concerns about the challenges that lie ahead.
He said the current high interest rate environment is exerting increasing pressure on commercial landlords, leading to a mixed bag of outcomes.
He pointed out that there are both encouraging and concerning aspects to consider.
On the upside, Jack noted that the commercial property sector in Cape Town is thriving due to increased demand, resulting in improved rental prices and returns.
The city’s continuous efforts to improve and uplift its infrastructure are also contributing to the sector’s growth.
Conversely, other cities like Johannesburg and Durban are witnessing “jobs shedding” in the construction sector, as infrastructure investment remains subdued.
Additionally, Jack said landlords are grappling with rising municipal costs, especially in areas like Sandton, where overheads are substantial and vacancies are prevalent.
According to TPN’s latest Rental Monitor Report, municipal costs now account for 61% of total operating costs and 26.2% of gross income generated by commercial properties.
These rising costs, combined with substantial investments in alternative energy solutions, have left many landlords struggling to make a profit.
In an already competitive market environment, increasing rental prices to offset these costs risk pushing tenants away.
“Overheads like these, coupled with substantial investments in alternative energy solutions, means that many landlords cannot afford to cover their costs, let alone make a profit,” according to Jack.
“Most landlords cannot afford to increase their rentals either at the risk of losing a tenant in a competitive market environment.”
As the nation awaits the Reserve Bank’s decision on interest rates, the fate of the economy hangs in the balance.
While a interest rate hike seems probable, its potential impact on various sectors remains a topic of concern.
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