Research

Industrial sector remains resilient in Q1 2021

Q1 2021 snapshots Sub-Saharan Africa

May 13, 2021

South Africa saw economic growth of 1.5% in the fourth quarter of 2020, primarily driven by a rebound in the manufacturing and trade sectors, according to JLL’s latest report. This has consequently led to the resilience of the industrial sector, which continues to see well-positioned high-quality stock outperform most asset classes – particularly logistics facilities operating in the food, beverage and pharmaceutical industries. 

According to JLL Sub-Saharan Africa Research lead Michael Scott, this can largely be attributed to the bespoke nature of assets in this class, coupled with limited supply, which continues to shelter fundamentals from economic headwinds to some degree. 

The hospitality sector, among the most impacted by the extent and severity of Covid-19 related restrictions, took a turn in the last quarter of 2020. The sector experienced increased occupancy rates to 40% in December 2020. However, the second wave and new South African variant of Covid-19 resulted in the loss of many previous gains. Occupancy rates dropped to around the 20% mark. While it is expected that South Africa will see continued improvements in the sector, the lack of international tourism and the impending threat of a third wave has substantial limitations to the meaningful recovery of the industry.

The oversupplied office sector continues to find itself in a challenging position in 2021, with fundamentals having already been under pressure pre-Covid-19. Shifts in corporate demand dynamics, unlisted vacancies caused by sub-letting and a constrained business environment are all factors that continue to impact the sector. The flex space model and hybrid working are becoming increasingly prevalent as corporates look to rationalise their space requirements and find intelligent solutions for employees. The success of remote working during the nationwide lockdown has revealed that many businesses can operate without full-scale office premises. Additionally, landlords have started showing a growing concern for weighted average lease expiry levels across portfolios as the cost of retaining tenants has proven far more affordable than acquiring new ones. A growing trend in residential conversations is that of a shift towards live-work-and-play, responding to large volumes of vacant B and C-grade office stock. According to JLL, without a sustained macro-economic recovery, office sector fundamentals are likely to remain subdued.

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