Emira Consolidates its assets in low-growth economy

PIN talks to Geoff Jennett, CEO: Emira Property Fund, about the landscape of commercial and industrial property finance and investment in South Africa, the challenges, solutions and way forward.

“The state of the economy and the state of the property market over the last two years have been challenging and are like to continue to be challenging for the near term future. The reason for this has been the lack of commercial property buyers and investors in SA, other than carryovers from the recent past,” explains Jennett.

“This is in the context of an economy that has had negligible growth over the last year and low growth expected going forward. There is also an oversupply of certain properties, particularly commercial and to a lesser extent, retail, affecting the supply-demand dynamic.”

Jennett has observed the trend of property developers continuing to bring properties to the market that they started developing two to three years ago, but with the economy not having grown sufficiently to warrant tenants expanding their operations. He describes added pressure on rentals and the widening of the supply demand imbalance, leading to landlords not achieving their desired rental rates.

“Since President Ramaphosa was elected in December, there have been some positive signs but economic improvements don’t happen overnight and we are still feeling the effects of the previous administration. Only when confidence in the local market has improved will we start to make meaningful inroads into the supply-demand imbalance and improve the prospects for commercial property.

“Tenants are taking longer to commit and are consolidating their rental space from multiple areas into one single space to improve their economies of scale. We have also experienced tenants liquidating because of tough economic conditions,” Jennef elaborates.

Emira’s total portfolio comprises 38% commercial and 17% industrial property, so these challenges are not unique to the company, but prevalent across the industry. Jennett has seen an exception in Cape Town, with economic growth there a result of semigration and a higher ease of doing business, as opposed to Gauteng. However, the Western Cape only constitutes around 15% of the total domestic market, while Gauteng comprises closer to 70%.

Jenneft notes the need for creativity in deal-making as well as incentives to ensure Emira’s offerings are most attractive to tenants by improving “lifts, loos and lobbies”, making sure the buildings are freshly painted, with good outside areas and flowers, and in the best condition they can be.

“We also create innovative and aggressive packages for our tenants, so that if they sign a longer term lease we provide them incentives such as contributing towards the cost of moving into the new premises, in certain cases rent-free periods and other initiatives in order to get space let.”

Our focus on the broker market includes an app which makes it easier for them to let our spaces and to do business with us. We keep an eye on our vacated space with a view to converting commercial into mixed-use or residential property, considering the best use for the building and the best product for the particular suburb or node. Lastly, in these market conditions we ensure that our service is of the highest standard,” Jennet clarifies.

With local markets showing fewer opportunities, Emira has diversified into the US market, investing 3%of its assets in four grocery-anchored open air convenience shopping centres in the mid and south-eastern parts of the US. The attraction there is meaningful GDP growth of 2% to 3%, with certain states experiencing 3% to 4% growth, and Emira will expand on its investment.

“Emira has a diversified, balanced portfolio delivering appropriate returns and we look forward to emerging into a higher growth economy imminently ,” Jennett concludes.