The PIC is on the track to acquire commercial property
The Public Investment Corporation (PIC) – deemed the largest single investor in SA’s commercial real estate sector – continues to make major investments in the sector despite the significant negative impact of the Covid-19 pandemic on the Most segments of the real estate market.
In July, it obtained Competition Tribunal approval to acquire the Central Square development in the Menlyn Maine neighborhood of Pretoria for an undisclosed amount from Menlyn Maine Investment Holdings.
PIC, which is the manager of the Government Employees’ Pension Fund (GEPF), was a co-investor in the R 1.8 billion Central Square development which opened in 2016.
The shareholders of Menlyn Maine Investment Holdings include African Spirit Trading 306, Kgwara Investments, architect Henk Boogertman, GEPF and African Spirit Trading 309.
Central Square, which is considered a single building consisting of retail and office space, is the anchor of the Menlyn Maine neighborhood.
This latest acquisition by PIC for approval from competition authorities follows PIC’s acquisition in May of this year of 100% of the lease rights to the Deloitte headquarters building in Waterfall City for 1.7 billion rand.
Real estate development and investment group Atterbury, through Dale Creek Investments, was a 50/50 co-investor in the Deloitte building lease and rental business with the real estate investment trust ( Reit) Attacq, listed on the JSE.
While the Covid-19 pandemic has created uncertainty over the future outlook for the office real estate industry due to the work-from-home phenomenon, the PIC appears to be looking for good acquisition opportunities.
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PIC spokesperson Sekgoela Sekgoela said PIC is a long-term investor and will not change strategy just because of Covid-19 in the short term.
He noted that the organization would monitor the long-term impact of the pandemic and respond accordingly “in accordance with customer mandates.”
“The pandemic has not affected all properties in the same way. The prices that have fallen considerably are for underperforming properties, ”he said.
Sekgoela said the two recent acquisitions were of fully leased properties, with long-term leases.
He declined to comment on the value of the Central Square transaction, adding that the financial terms of the transaction will be released as part of PIC’s annual financial report.
“The PIC is a tenant of Central Square, occupying a building that GEPF will own 100% after this transaction,” he said.
” It’s time to buy “
Erwin Rode, CEO of real estate services firm Rode & Associates, told anyone with confidence in South Africa’s mid-term future, “Now is definitely the time to buy.”
“When everyone’s selling, it’s time to buy.”
“I’m not at all surprised that PIC is buying. The implication is that they [the PIC] are probably more confident about South Africa’s economic future than your average real estate investor, ”Rode added.
He believes commercial property values in South Africa have fallen 10% over the past two years, but admits that in some cases the drop could be much larger.
Rode said it is difficult to determine the decline in the property sector’s value as the market is still trying to “find a price point” and very few sales have taken place.
“We know it’s gone down, it’s just a matter of how much. The reason for saying this is that we all know there has been an increase in vacant housing for office buildings, especially old grade B and C grade offices, and we also know that rentals are under tremendous pressure, y included in shopping centers, ”he stressed.
Rode added that when a lease is due for renewal, landlords are faced with one of two things: there’s a good chance the tenant will take up less space, or the tenant will bargain hard for a lower rent.
Telework in perspective
Rode said some large U.S. companies would force their employees back to their offices, but believes the impact on the commercial real estate industry of employees working from home is likely overestimated.
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“It’s not like 50% of people are going to work from home in the future. I’m assuming no more than 20% of people who previously worked in the office will still be working from home after the pandemic.
“But small businesses in particular will be more inclined to allow employees to work from home,” he said.
Rode questioned the sustainability of companies allowing their employees to work from home.
“It’s great to work from home while you know your staff and they know you and your company culture, but when people quit and you appoint new people and they start working at home, it’s harder to create a corporate culture and train people, ”he said.
Rode believes that the commercial real estate sector will be hit the hardest in the commercial real estate sector over the next few years, as there was already an oversupply of commercial space in 2019 which “is going to last for quite a while. time “.
He said the expected poor performance of the economy over the next few years will mean vacant retail housing will be higher than it otherwise would have been and the turnover per square meter of retailers. retailers will shrink, putting market rentals under pressure.
Rode said typical average vacancy rates at good office nodes, such as Sandton, are now above 20%.
“If 20% of workers are going to work from home in the future, imagine what that will do for the vacancies,” he said.
Rode predicts that office tenants will reduce the amount of space they rent.
“The office market is going to be in trouble for a long time, in general, unless you have an AAA tenant on a long-term lease.
“But even them [AAA tenants] will put pressure on their owners, ”he said.