 Good evening and welcome to episode 172 of the Private Property Podcast. I'm your host Ozam Adonua Kumalo. I do hope you had a restful day of reconciliation yesterday. I know we were not on your screens. Well, we are back, of course, with all things relating to property. And if you're watching us for the first time across our social media platforms, then certainly, where have you been? You've got quite a lot to catch up on. We've got great shows for you here across the private property platforms. And one of the things that you probably want to do is to catch up on some of the old episodes that we've had of the Private Property Podcast. But also, of course, get yourself acquainted with some of our other shows. And of course, I'm talking about the first time home buyers show that comes to your screen every single Wednesday at 7.45. That's brought to you by Estie Clarkson. And you definitely want to make sure that you tune into the show if you are a first time home buyer or about to buy your first home. And want to get a sense of what you can expect. And also hear from people who are who've already walked that path and what their experience has been. Another show that we're very excited about is brought to you by Umba Linoa Gold, which is the farming podcast. So if you know that you've got green fingers and perhaps you want to explore agriculture, whether it's crop farming or perhaps even kettle farming, then you certainly want to make sure that you tune into that. I think livestock farming is one of those things that some people have ambitions of. But you never quite know how to go about doing so. So do make sure that you tune into the farming podcast. It comes to your screens every Tuesdays and Thursdays at 1 o'clock. And we don't leave you alone over the weekend. We always bring you the developer show with Chad. And that's where of course we profile some of the best estates that the country has on offer. So that's every Saturday and Sunday also at 1 o'clock. So we have quite a lot of shows in store for you here on the private property social media platforms. And one that we're quite excited about is a special web series that we started on Monday and that is Building Stronger Homes brought to you by PPC. And you can tune into that one at 8 p.m. So there's certainly quite a lot in stock for you if you're always looking for something to chew on when it comes to property and your property journey. And we never forget any topic that you want us to cover. Make sure that you do drop us a message down below. We always love hearing from you. And talking about hearing from you, one of the things that we're certainly doing to wrap up the year the best way we know how is of course with a competition where we're giving away up to 100,000 rands across different competitions and awards right here across the social media platforms. And one of the ones that we're running right here on the podcast is of course questions for the champions. And all you have to do for questions of the champions is get four of your friends or family members. Make sure that you give yourselves a team name. So you're going to be a team of five. Give yourselves a team name. Make sure you watch the show live. You need to come on to the live. You don't make yourselves known. Say I am team case of chiefs. We are watching live. And wait until the very end of the show where we'll be going through five questions. And the first team to answer those five questions first we'll walk away with 1500 rands. We will be announcing the winners the following day. And of course the winners are the questions rather are based on the previous day's episode. So it's so important that you stay tuned to the various episodes. You watch live and of course get yourselves ready to answer those questions as quickly as possible. And they'll be announcing the winner just after the break of who won the Tuesday competition. And we'll also be going through the questions for tonight's competition later on on the show. But to get a start with our conversation we are looking at something. I mean we're wrapping up the year. We're also looking at what we can look forward to of course in the new year. And this time around we're looking at you know 2021 understanding real estate trends and navigating remote working. We know that one of the things that happened due to the COVID-19 crisis is a lot of us found ourselves working at home. I myself right now am home. A number of the different guests that I've had throughout the episodes typically tend to be home. And for the longest time had been working from home. So I want to get a better understanding of some of the commercial real estate trends that COVID-19 has actually brought up. What we can essentially look forward to into the 2021 year and perhaps what some of the trends are going to be in the new year. And to better understand to help us better understand this and even set the the tone for what we can look forward to in the commercial real estate sector. I'm joined by John Jack who's the CEO of Galathe Corporate Real Estate. John good evening and thank you so much for joining us. Hi Zama, how are you going? I'm very good thank you. I mean John it has been one of the most unprecedented years we are facing a global pandemic that has affected every industry. I don't think I know of any industry that hasn't been affected. They've been a lot of highs and certainly a lot of lows. And I think one of the hardest hit industries is probably the commercial real estate sector with a lot of the big corporates not of course being able to have their workforce in the office and us almost rethinking you know working at the office or having to you know work remotely. Perhaps take us through some of the trends that we actually saw this year before we even look at what we can potentially expect in the new year. Sure you know I think first of all there was the hard lockdown and the train there was everyone had to work from home so literally the world came grinding to a standstill. But what's sort of developed after that being allowed to go back to work is the decision do you go back to work or don't you go back to work. Now there's a difference in the different sectors right so if you take retail for example there's a very defensive retail where you've got sort of lower end lower lsm where people are literally going to buy food and they are there to buy food and so there's a lot of sort of traffic through those shopping sensors and those have just continued to do sort of very robust trade albeit down a bit but still very robust trade and so rentals have been generated there because the income is being received by the by the tenants you know. Then you've got on the other end a very high lsm where it doesn't really matter that you know you're not working what if you're probably still going to the shops you probably might not be going to the restaurants as much as specifically the restaurants sitting inside but there's still money being spent at these shopping sensors and so those are also fine. Where you get a problem is those shopping sensors that are sort of in between the two they're not the high lsm they're not the low lsm they're in the middle lsm and they there's no real reason for you to be there you know it's more of a destination place and so people have decided not to go and those have been the hardest hit. Then of course you know if you look at industrial versus office you can't manufacture from home you can't assemble at home you can't logistics from home you know so those have continued to operate albeit the difference is is that maybe that sector's actually done a little better because you look at the likes of a take a lot take a lot of how to increase their footprint during the lockdown because there's more online trade and there's more requirement for the sort of e-logistics type of space and they actually increased their footprint by 50% during the lockdown you know we were literally going around the country taking up additional warehousing. Office has been challenging because you can work from home as an office user. I suppose the biggest difference is that you can't necessarily create at home you can't build a culture at home you can't you know innovate necessarily at home as a team and so those are the big changes and I think you know our sort of insight for the whole thing is that people will continue to use office but they won't use it in the same way that they have. And I mean John if you kind of reflect on the different ways that people are potentially going to be using the office in the new year you know what are your insights on that because as you're saying we certainly will continue using the office so I don't think the workplace or the office space is absolute I mean I know there's some people thinking look let's just do away with it completely. I certainly don't think South Africa is there at all or we're going to be moving in that direction at all so what are the different ways that you see people then moving off using office rather in the new year. Sure you know I think again you've got to sort of like split up the entire spectrum of office and look at the actual type of end user and you know you look at those sort of call center type of space right. That's sort of like a lot of people in the building where they could potentially use some of their space at home to take these calls and that kind of thing but you're not ideally set up so you need to continue to use that call center and so actually those call centers have had to take more space to cater for spreading their people out in their offices because going home is not necessarily an option because when you look at the home environment you need to go again and look at the LSM right at the lower end of the LSM it's not an environment that you can be in at home and work you know maybe you have kids at home maybe you have other family members it's not such a large home you don't have your own private space it's not it's not quiet enough maybe your internet's not set up correctly and so those are very big challenges from for working at home on the high LSM you probably have an office set up at home your Wi-Fi is good you know so all of these things are fine but generally in in those situations you might be needing to work with a team and you again can't work with a team from home you can on teams and that type of thing but you can't actually sit and work on a project it becomes quite difficult and so what we really see is that people are probably going to reduce their office space you know we've seen people going down to sort of 70 percent of their office space and then what they do is they go to like the business exchange or we work or readjust and they go and take up some flexible space where they say well we have another 10 people and we'd like to sign another 10 desks and we'll sign that for three months and then at the end of three months maybe you've got another another 10 people you can take them on so you can kind of like align your cash flow or your rental expense to the growth of your business or alternatively if business becomes a problem you can very quickly match your cash flow back to the reduction of your staff size but there's always going to be a core part of your business there's always going to be a core element of people that need to be at the office and and it differs in the different industries and you know I mean John I've certainly been looking at different conversations from almost different stakeholders those who are in commercial real estate and also the users right so your actual employees some having very missed views around working at home some enjoying the flexibility of you know sleeping in until 10 minutes until you know that new thing has to start in the morning but I think those are probably the earlier days where you thought you know what I've got an eight o'clock meeting you can stay in bed until take two the moment it starts to hop on at eight but I think as the months went by you had to almost think long term and people were realizing that some of them were not necessarily as productive as they would have liked others were saying look I'm actually more productive I'm not spending as much time in traffic as I used to so I'm actually enjoying it so I think going forward one of the things that would probably be quite great to see from companies is certainly giving their employees who are able to work remotely the flexibility of doing so and I know that that's probably more of a cultural shift than it is a logistical work because we also I think understand the the nature of how work is in South Africa some you know some corporations have a bum's on seat mentality and not necessarily tracking creativity or tracking how you're probably doing with work but I want us to move you know into the new year when we look at then what we can potentially expect in terms of the commercial real estate trends in the new year what are some of the trends that we should probably be mindful of you know it's interesting I just got two comments on what you've said there you know two years ago all the all the chat was about sort of open workspace you know open work environment hate hate hate open spaces and and so it was like how much sort of cubicle type offices to how many sort of fixed closed offices versus your open plan workspace that was that was the big chat and and really sort of fundamentally the psychology was are you a thought worker or are you a team worker okay now as a team worker you can imagine like a sales environment or a collaborative environment where people are talking and they actually like the energy and the noise that brings something to the to the work environment certainly a sales environment whereas a thought worker actually just needs to sit and concentrate for a bit so they might be a creative or a lawyer or or whoever it might be an architect someone who actually needs to sit and concentrate and produce a piece a body of work and they required offices and so the question was not like open plans the rage was open plan is the rage for a specific type of of user and then closed offices are what are required for another type of user and what's the right ratio between those types of user and who's there now it's exactly the same thing because a thought worker someone who needs to produce a body of work is quite happy to work from home because they can sit and concentrate and they can actually get that work done whereas the sales guys miss the energy of the team and it's exactly that that's a differentiation between the two and and you know you picked on up on it and really what it is we're breaking the psychology you know it's it's not only a mentality of bombs and seeds we're breaking the psychology of oh I have to be at work by 8am you know oh god I'm late and oh it's five and you're like racing into the lift and you're trying to get into the office and and you're late and then everyone kind of looks at you when you walk in late and thanks for arriving and you know that that type of thing and you know leaving work at five o'clock and you know I have to stay there I don't really have anything to do but I've got to stay and I should have been able to fish my kids or whatever it might be it's just broken that psychology and you know I keep saying it's it's it's office office space has become more of a service okay it's a service to the end user so it's there to be used need to use it if you need to collaborate it if you need to maybe home today is a nightmare because there's a all the kids are coming to your house so it's better to go to work or whatever it might be is it's a place to be with your team with your company to create a culture and to grow your business but you don't have to be there all the time I'm certainly not at work all the time sometimes I work from home sometimes in the office sometimes I'm working from a restaurant or coffee shop or whatever it is it's just it's far more flexible and there's no panic psychology anymore and the traffic you know the traffic patterns actually reflect that there's far less traffic these days even though a lot more people are going to work and I want us to take a quick break John I'm going to come back then we will dig deeper into the 2021 trends because I know that I was saying earlier that some people thought you know office space is going to become absolute we know that that's not going to be the case I'm keen to hear your view on where office is probably going to be in the new year and some of the trends that we must watch out for and perhaps also what then happens to unused commercial real estate you know buildings because the reality is we were already seeing quite a lot of unused office spaces prior to you know the lockdown and I mean if I look at for example Santan there were quite a lot of empty spaces they built very polishly very quickly even in the Rosebank area some of the spaces were lying vacant prior to lockdown and when you're driving through now you're seeing sort of more spaces being vacant you also know that some of the smaller businesses could no longer pay rentals so they had to kind of find different ways of operating in other spaces because the cost of rent was now essentially too high so certainly keen to hear your thoughts around unused commercial real estate and what we could potentially do with them we're going to go for a quick break and as we come back with them we're going to be exploring some of these but before that here's a quick word from Estie Clarkson what's up private property fam as you know throughout December we're running amazing amazing competitions and tonight we're talking about the estate agent competition all you had to do was head over to our facebook page comment on the estate agent post and tell us your highlights of 2020 and how you remained on top of your game well drumroll please because i have the winner for tuesday's competition it is christa druster christa says i started in 2020 just before covid lockdown as an intern property practitioner and i'll do properties whole new industry for me at my age i am busy with my nqf level 4 logbook and sold three properties and have six tenants in my rental properties what a year i have a valid ffc and i'll do properties on listing with private property that's christa and if you want to be exactly like her head over to our facebook page and you too could win 1500 grand cash it's happening all week you do not want to miss this back over to you zama have a good week come back to the thursday edition of the private property podcast i'm your host ozama don't want comalo if you just joining us then you certainly want to make sure that uh after this episode you catch the first half of what is such a great conversation along understanding real estate trends and navigating remote working we're certainly looking at the commercial real estate sector we know that it's been hardest hit by you know the covid 19 crisis and that's it is finding different and creative ways of your best you know adjusting and also of course you know trying to also stay above float as much as possible now remember later on in the conversation or certainly later on in the show rather i will be going through this evening's competition questions that is the questions for the champions and if you don't know about it we have to check the details down here below remember all you have to do is form a team of five with your friends and family make sure you give yourselves a great unique name and join of course the live as we come on every weekday at seven p.m we will be asking questions at the end of the show that are based on the previous night's show and the first and the fastest team that answers the questions correctly quick to walk away with 1500 grand we will be announcing the winner the following day because we want to make sure that we verify the right winners that they weren't in fact on the live and all five team members were in fact on the live so do make sure that you read the competition details down here below get your friends and family and win big this festive season later on in the month we'll be giving away 15,000 rounds where we ask 10 questions and of course the runner-up of that one is going to be walking away with 10,000 rounds so there's quite a lot of money to be given away we are feeling festive we are in a giving spirit so you do want to make sure that you get your hands on some of that cash now to get back to my conversation with john jack who's the CEO of galetti corporate real estate you know john we're saying before the break i certainly want to look at some of the 2021 2021 rather trains that we could anticipate and i think one of them is perhaps you know these contracts perhaps take us through what we could potentially expect when it comes to these contracts you know i think probably the first thing is that everyone's going to want to force measure clause in their lease contract you know i think that pretty much the whole of South Africa ran to go see if they had the clause some people were lucky that they did 90% of people didn't and you know even if you did have it it was it needed to be very specifically worded to actually be able to claim force measure now really i think that lease contracts are going to be quite interesting because if you're a large occupier and you need to relocate it's a significant capex amount to relocate you've got to fit out your office you've got to you've got to buy furniture specifically for that office and you need to move yourself and so the cost of that is quite prohibitive just to start off with to move so if you're going to be signing a short lease contract the landlord is less likely to help you out with that capex if you sign a long lease contract the landlord is more likely to help you out with that capex so i see incentives from the landlords really jumping you know so it's going to be a lot of rent free a lot of tenant tenant installation allowance it's going to be a lot of maybe even amortized loans to be able to allow that tenants move in the first place the second thing is on the short contract side a lot of tenants are probably going to be wanting to put some kind of lease cancellation clause into the agreement and what that might be is maybe a clawback on that capex amount that was loaned up front because when you sign these long leases you're actually binding yourself into that agreement obviously for a long time but really what's happening is if you run yourself into business trouble or business failure or in a situation like we've had now a completely black swan unprecedented event where suddenly you might have literally no income everyone plans for 20-30% down but no one plans for zero and all of a sudden you've got a situation with zero income and you still have a lease agreement and is your business still relevant going forward now we've got different types of businesses so we've got some clients that manufacture for example aluminium canopies for trucks you know where you can go camping and you can go and explore South Africa this business has doubled literally doubled you've got demand for that type of car where you can drive around South Africa and go and explore different towns and time the mountains and see the rivers and literally tourism in South Africa from a local perspective has really sort of obviously blossomed for those that can afford it and people need camping equipment the type of vehicle that's able to do it and so those types of businesses have really sort of jumped the other type of businesses that have jumped are home improvement so every second person who could afford it was putting a heated pool in or that room that they just are so tired of they're fixing the room or they're changing the paint colour or whatever it is so you've got guys who supply home improvement tools businesses double guys who install heated pools businesses double never been busier but someone who's in tourism specifically offshore tourism businesses nowhere and so it really depends on the sector that you're in to determine sort of what has actually happened there and what you need in your lease agreement and that's the interesting part and you know Jack what would you say when it comes to subletting commercial real estate the landlord's biggest competition at the moment it's incredible you've got every second person wants to sub lease some kind of real estate and so you've got a lot of landlords and being a landlord you obviously need to achieve a return you've deployed capital you need to achieve a return you've also got the bank who's financed your property and you need to you know service that debt and all of a sudden you've got someone else who's a tenant they're they're an architect they they're a lawyer they're whatever that occupier might be who says you know what we actually need 50 percent of our space now our business continues to operate and we earn income from legal fees for example but we need to give up some of our space so any income is better than nothing whereas for a landlord they need to achieve a return so they need a certain amount of income or certain rental amount but a lawyer looking to sublet a thousand squares says you know what give me 50 round of square meter where the going market rate might be 120 round of square meter now the landlord might be able to get to a hundred but he certainly can't get to 50 and that's that's the big challenge for landlords because the second that that landlord starts accepting 50 round of square meter for his income on the building the bank says well hang on your building is now worth the capitalized value of that rental and so actually now your your debt levels are completely out of whack and we need you to settle the debt so it has a huge effect on on the gearing in the market and I think come sort of January February March the first quarter of this year you're going to see the banks starting to call call loans and you know they've been very very supportive of the market it's in there it's in their interest to be supportive of the market but there's a point at which they can no longer be supportive and they're going to start to call these buildings so I see a lot of buildings getting themselves into into trouble and and you've seen these huge asset sales in the market and because they're two-fold not only you know you've got pressure sellers but then you've got other sellers who're sitting there going well hang on the interest rates about as low as it's ever been you know it's certainly in the last sort of 40 50 years okay and and generally your yield tracks your interest rates largely okay and what people are doing now is they're bidding heavily for long-term leases so if you've got a 10-year lease a 12-year lease the bids are some of the best bids I've seen in the last well forever you know I've never I've never seen bids at this level you know you you know properties are receiving bids that's sort of seven percent forward yields and so an investor who's holding onto this property who it always valued their property at say eight percent eight and a half percent can now sell it at seven and a half percent what a great transaction so they are taking an opportunity to sell their asset at this very improved bid to those investors looking for long-term cash flow and you can imagine those are the pension funds and you know those investors who are looking for long sustainable cash flow they have a mandate to invest in property and that's what they're doing on the other hand those leases of five-year leases three-year leases that type of thing they're almost oversold they are so far apart from the seven percent long-term lease you know you're sitting at like a 10 percent for your short-term leases where that that's sort of spread we're always so tight you know it was within 100 basis points now you're sitting at 300 basis points in certain scenarios in a in a micro market you know and that's that's a big trend you're seeing significant asset sales and that's now John I mean then what's going to be happening with the unused commercial real estate because we also know that as I was saying earlier we already saw that there are some buildings that were vacant pre-lockdown um and I think once certainly when I look at some of the areas that I'm in more and more sort of commercial real estate has gone on to be vacant what do you foresee happening to to that real estate sure so you know we sit here with as a private investor as a private landlord you sit with that hat on and you say well for me I would want a tenant or I'd want to think of a new use for this building perhaps change to residential or mixed use or whatever it is I want to I'm going to change the use of this asset to to get a return right that's what you would do as a private investor the fund sits with a completely different hat on the fund goes well we have a portfolio of properties and we manage your vacancy percentage in that portfolio of properties and we might not be happy with the percentage of vacancy but still there's enough cash flow to cover the whole picture so we would rather keep it vacant than accept a lower rental whereas a private guy might accept a lower rental because something's better than nothing whereas if one won't accept a lower rental because then the bank will say oh you've just accepted 50 rand a square meter on your building in santan that means santan is obviously trading at 50 rand a square meter that means all your properties in santan on reversion are going to revert to 50 rand a square meter therefore the debt is out of kilter therefore you need to put equity into sort managing the balance of of your your debt ratios and and that's what's going to happen they're going to sit vacant until they find a tenant or they're going to be converted into residential or sold to own occupiers it's a wonderful time for those own occupiers who know they're going to continue to use office space it's a wonderful time for them to buy their properties because the values are so far down on on what they used to be well john uh i mean we're certainly going to leave it there this evening um thank you so much for joining us and hoping that you your team and certainly your family have a great festive season and definitely looking forward to having you back on the show in the new year thanks so much and that is john jack who is the CEO of guinetti corporate real estate we're going to go for a quick break and when we come back we are of course doing questions for the champions and we'll also be showing who the winners of the competition that we had on Tuesdays were said you want to not miss this one especially uh you and your team are already tuned in and you want to make sure that you catch what this competition um is not only about for the night's questions we're going to be back just after this back to the thursday edition of the private property podcast i'm your host was a man doing well come on though well it's that time of the evening where we are talking money we're talking competition and talking giveaway and we're starting with the giveaway the winners of the tuesday uh leg of questions for the champions is uh hashtag team yolo uh congratulations to team yolo you walk away with that 1500 grand in cash the price is going to be paid out tomorrow so we pay up all our prizes at the end of the week so do make sure that you get in touch with us and of course with you we will we will be uh giving you that prize and it is that easy to win a thousand 500 grand with you and your team all you have to do is form a team of five with your friends and family give yourselves a unique name then make sure that you tune in to the private property podcast every weekday at seven p.m and when you tune in make yourselves known you want to see that your team members are in fact watching then you wait for this time of the evening where we watch where we ask questions based on yesterday's show but we didn't have a show on wednesday because of course it was a public holiday but we're going to be basing these questions on tuesday's show and it's that simple the first team that answers all five questions correctly walks away with that 1500 grand and for this evening's uh questions the first question is especially levy only requires the approval of the trustees of the body corporate at a normal trustees meeting and not all the owners in the scheme i'm going to repeat that one it is especially levy only requires the approval of the trustees of the body corporate at a normal trustees meeting and not at all and not all the owners in the scheme so that's the first questions for this evening's competition it is of course questions for the champions giving you an opportunity to write your answers below remember when you write your answer use your team's hashtag so we're able to track who is answering the question and the second one is a community scheme is a group of people saving up for shared use of and responsibility for parts of an area and hotels they booked in for vacation that is a community scheme is a group of people saving up for shared use of and responsibility for parts of an area and hotels they booked in for vacation and that is the second question then it's also on your screen i see the first question is already up on your screen so we're also putting them down here so that you don't miss them at all and the third one is the community scheme ombud services was created in 2015 to deal with dispute resolution in community schemes we talk about this scheme so often i'm sure a lot of you already know this one off the top of your heads and it is the community scheme ombud services was created in 2015 to deal with dispute resolution in the community schemes and then the fourth one is schemes with more members are most likely to pay less in levies that is schemes with more members are most likely to pay less in levies you can see how easy these questions are we make sure that we keep them as simple as possible because we're not writing an exam we want to give away this money we want you to win so do make sure that if you haven't already formed that team of five members and make sure you tune into the private property podcast every weekday at 7 p.m and it really is that simple to be able to walk away with that 1500 in cash and the last question for this evening is if the tenant breaks the rule the rule the property owners is liable for any fines that may incur so that is if the tenant breaks the rules of the community scheme that you live in the property owner is liable for any fines that may incur well those are the five questions for this evening's competition do make sure that you answer them down here below use the hashtag of your team name in order for us to be able to track you and of course we will be announcing the lucky team that's going to walk away with that 1500 trying to tomorrow as we verify the details well that's it from me Zaman Dunwoa Kumala and the rest of the private property podcast team we're back again on your screens tomorrow at 7 p.m and until then hoping you're staying home and staying safe I'm Alan Footman I'm a sports tour operator from Cape Town my family and I have been living in the southern suburbs for 21 years what we love about the neighborhood is it's very family orientated lots of things for the kids to do especially here where we are next to the farm where folk can walk the dog go for runs and enjoy the fresh air in the southern suburbs we're lucky enough to have some of the top schools in the country and on top of that we have the University of Cape Town one of the most famous universities in the world Newlands is a great suburb all the sporting amenities Newlands rugby ground cricket ground etc down the road to Claremont lots of shopping centers for the kids and for the mothers to do their shopping fantastic pubs and restaurants around like forries springbok bar the Bishop's Court is full of beautiful upmarket homes Kirstenbosch Gardens national botanical gardens right next door what attracted us to Constantia is it's a large open spaces I've always wanted to be a farmer and now I'm living next to the Constantia wine estate the oldest wine farm in the country where you have fantastic wines great restaurants got the best of both worlds my family and I have loved every moment of living in Constantia we couldn't be happier and this is our neighborhood