Hotel revenues and office property occupancy rates remain far below pre-Covid-19 levels, and although vaccination programmes have opened international travel and allowed for more mobility in both tourism and the corporate sector, these two property markets will continue to underperform in 2022.
This is according to First National Bank (FNB) commercial property finance economist John Loos, who was speaking at the bank’s quarterly property market briefing on Thursday.
Capital growth in the hotel property market is forecast to remain in negative territory at -5%, but this will still represent a recovery compared to -14% this year. The forecast for the office sector is -3% (2021: -11%), but industrial property is set to see 4% (2021: -1%) growth. Retail property is forecast to grow around 1%, up from -4% for this year.
In terms of net operating income, the industrial property market shows strong signs of recovery to pre-pandemic levels, according to FNB.
He believes the hotel property market is expected to lag all three major commercial property (office, retail and industrial) classes in terms of the recovery.
“And then there is the struggling office market. This major class is expected to see its national average vacancy rate continue to climb in 2022, as many companies revise their office space needs down,” Loos says.
“Much has been made of the remote work surge … and this is a key dampener of demand for office space. As lockdowns ease and economic activity normalise, many have gone back to their offices. But I believe the level of office working won’t go back to the same levels as before the lockdowns, and as technology continues to improve, so the multi-decade trend towards greater remote work levels will continue,” he adds.
Loos says people often overlook two other sources of pressure on demand for office space. The first is the normal recession effect, which he notes caused a major drop in employment numbers in the office-bound sectors of the economy.
“This means that even without any increase in remote work, there are [fewer] employees in the services sectors, which implies less office space needed.”
“Gone are the days when every employee had a desk reserved for themselves, meaning a large portion of desks standing empty much of the time. This sharing of desk space will further reduce the need in the coming years for office space,” he adds.
Loos stresses that the office and hotel property markets will continue to underperform next year and could still see a further nominal value decline.-moneyweb
