South African companies tell their employees to return to the office

Most corporates in South Africa have compelled their employees to return to the office, resulting in a greater need for office space and a boon for commercial property.

This is according to Emira Property Fund CEO Geoff Jennett, who said South Africa’s listed property sector has been in the doldrums for the past seven years. 

“A toxic cocktail of economic weakness leading to rising vacancies, the devastating impact of Covid-19 lockdowns and higher interest rates, and the added burden of load-shedding and various other costly utility challenges created a perfect storm,” he said. 

“It brought cruel headwinds for property owners that have left investors wary. But the winds of change are blowing.”

He said listed property share prices are starting to show an increased value proposition, which will inevitably filter through to the physical commercial property market.

This can already be seen as, so far in 2024, real estate investment trust (REIT) returns are up in excess of 50%. 

Jennett said that there are no signs of a real estate turnaround more evident than in the Western Cape, where offices that sat vacant just 18 months ago are now full.

He explained that the semigration trend to the province is part of this. ‘Semigration’ refers to moving from one part of a country to another.

It is a trend that’s become very prevalent in South Africa over the past few years, with the Western Cape, in particular, seeing an influx of people flooding into the province.

However, Jennett said there’s more to the rebound than semigration. 

He cited improved sentiment after the election of the Government of National Unity, less load-shedding easing strain and costs, and the first reduction in interest rates as country-wide factors all contributing to a surge in sentiment and confidence.

In addition, he said most corporates are now insisting on a return to in-office work, resulting in a greater need for office space. 

“This spells opportunity – particularly in Gauteng, which is the hub of South Africa’s economic engine and where vacancies are still prevalent,” he said.

In 2024, several South African companies – including Vodacom, Nedbank, and Arena Holdings – amended their work-from-home policies and started mandating their employees to return to the office.

These companies are part of a wider trend of South Africans returning to work in the office after the Covid-19 pandemic accelerated the trend of not working from a traditional office.

Earlier this year, Discovery Bank’s SpendTrend24 report revealed that over three-quarters of South African office workers now commute to the office at least three days a week, and people are driving more than ever before.

Property boom

Jennett explained that property is inherently cyclical, and this cycle is starting to pick up the first gusts of coming tailwinds. 

“Yes, the sector still has an oversupply to digest, but there’s value in it if acquired at the current low pricing levels,” he said. 

“As offices fill up and economic sentiment improves, their values will increase commensurately.”

“With the anticipation of reduced vacancy levels, property investment becomes more attractive, and the prospect of new developments becomes increasingly feasible, drawing investors and speculators back into the market. It’s a potentially tantalising prospect after years of stagnation.”

He said the future prospect is more alluring than it has been for a long time. This is even true in the local REIT sector, where share prices still significantly undervalue their businesses.

However, Jennett said the incoming tailwinds will inevitably see an acceleration towards recovery.

“When market sentiment overshoots fundamentals, long-term investors like Emira stay focused on what makes business sense, not getting caught up in the hype – acquiring at below value in places where economics are suppressed and disposing when values are full,” he said. 

“It all comes down to strategic capital allocation and responsible growth. When markets show extreme dislocations from value, that is the time to move and take advantage of what will eventually show as long-term value creation.”

Emira recently sold off its portfolio in sought-after Cape Town at what it perceives as fuller value. 

Jennett said this strategically aligned move freed up capital to be deployed in Poland, where returns are extremely enticing.

He said the fund found this market to be undervalued with strong economic growth prospects and Emira has been able to identify the right entry point – a decision that makes business sense for Emira in its pursuit of diversification and value creation.

“Rising REIT returns, reducing vacancies, and returning office appetite all point to a sector in recovery mode,” Jennett said. 

“The property cycle is turning, and those with a keen eye for value are already taking notice.”

He said South Africa’s property sector still has meaningful operational and infrastructure hurdles to overcome, but the winds of change are starting to blow. 

“With a nuanced understanding of the sector and a discerning eye for emerging potential, there’s substantial value in listed property stocks right now, with further value to be found in the future,” he said.