10 Apr Naïve to ignore disruption in the property markets
Naïve to ignore disruption in the property markets
Almost every industry is facing some form of disruption. Most of the change has been linked to new technologies like AI and virtual reality. But the real revolution is coming from completely new ways of doing business.
Unsurprisingly, this is having a knock-on effect on the property markets and, more importantly, where smart investors are putting their money.
How the digital revolution is transforming business
We are living in a digital society where the virtual world and the physical world merge, and in which everyone and everything is connected. One of the biggest shifts in this new digital economy has been the move towards platform models.
A platform is essentially a network (digital or physical) that creates value by facilitating connections and exchanges between people for services, products or information. Platforms have given rise to businesses like Airbnb, Uber and Amazon, and are also the foundation of what Facebook and Twitter do. What this means is that the large corporation is now the exception rather than the rule. Companies are forming alliances with smaller, more agile companies to provide them with services, rather than developing in-house. The result is a plethora of smaller companies and consultants, (often referred to as the gig economy) with very different property needs.
Catering to this new business landscape means an increase in the need for co-working space, short-term leases and much smaller spaces. All these need to be geared to meet the price points of businesses which do not want to be tied into long-term leases and who won’t pay for anything other than what is absolutely necessary. At the same time, tenants of these spaces are looking for value-adds such as superfast broadband access, gyms, and social spaces in the building.
Rise of the green economy
The second influence that is shifting the property landscape is the growing awareness of climate change and a focus on green technology and renewables in order to address this. Specifically, how proprietors of big shopping centres in Cape Town have to amend their thinking in line with the current water crisis.
The evidence of the environmental commitment can be seen in the rise in the number of green buildings springing up in the metropoles. These buildings are designed to have a minimal impact on the environment and make use of renewable energy sources like wind and solar. Other energy and water saving mechanisms are used wherever possible and some even include vertical and roof gardens where the produce is served up in the building’s cafeteria – producing only what is needed for the residents and significantly cutting down on the carbon footprint of the entire building and its tenants. This is even extending to resource-intensive retail space and in January 2017, Woolworths in Claremont became the first local retail store to receive the 5-star environmental rating by the Green Building Council South Africa (GBCSA).
Shifting workforce, shifting residential requirements
It’s not just commercial property which is experiencing significant change. As the business world changes, the requirements of the workforce are shifting too.
Growing pressure on personal income means the population – particularly the younger age groups – are looking for accommodation which is close to work and does not require the long-term financial commitment of a bond.
To meet these needs, smart developers are snapping up B-grade office blocks in commercial centres and converting them into residential spaces. Moreover, areas that have traditionally been industrial-only are now seeing mixed commercial, industrial and residential developments. In many instances these areas, like Paarden Eiland in Cape Town, are often situated fairly close to the city centres lowering transport pressure. As the demand for residential accommodation grows, these suburbs are prime development areas, attracting funding from the buy-to-rent investors.
The need for affordability has also seen the rise of much smaller apartments. Before, the rental market was at 54s qm in size, but now new developments are coming on board with 18-22 sqm micro-apartments.
Other property investments which are gaining momentum include new hotels. Previously, it was fairly difficult to secure finance for these developments. However, with attractive tax incentives such as the 12J venture capital funds, developers are able to tap into the government drive to provide funding for companies that will boost economic growth and job creation.
Given the rapid rate of change in technology, environmental pressures and the shifting attitudes of the younger generations, it is not surprising that property needs are changing. Property investors are keenly aware of these trends and it makes sense for developers and property owners to shift their offerings inline with the new world order. More particularly, it makes sense for developers and owners to deal with a partner who is acutely aware of all the changes in the property sector and knows which lenders are best suited to their clients’ financing needs. With Paragon, developers and investors have access to not only its own fund, but to over 117 lenders in its network that focus on different lending solutions and products to finance their property ventures.