If the electricity crisis continues and property developers are unable to provide new stock to meet expected demand, the traditional property cycle could be significantly altered.

Renprop MD Chris Renecle says the market could see significant rises in rentals and prices for commercial and residential property.

In the normal cycle, the commercial property market would be expected to quieten down in 12-18 months while the residential market would be drawing reinvestment from investors and speculators.

“We find ourselves in a property cycle where the residential market has quietened down significantly because of a rising interest rate environment,” he says. The traditional investors and speculators have withdrawn significantly from the residential market, and the commercial property market is buoyant.

The commercial property market would be expected to continue performing strongly for some time, while in the softening residential market rent increases are expected because of a lack of new supply, says Renecle.

But the JSE has also lost value recently. Usually in this scenario the market could expect speculators and investors to start reinvesting in residential property in the next 12 to 18 months, especially in expectation of a drop in interest rates later this year.

But Renecle says that with power supply uncertain, developers might not be able to supply sufficient new residential and commercial property stock to cater for the expected demand. Consequently there could be a rise in the rentals and prices of both commercial and residential property.

Property economist Francois Viruly, of Viruly Consulting, says that as far as energy use is concerned, commercial developments tend to use less electricity than a similar residential development.

“One of the first things we’ll start seeing is a slowdown in development. I believe the tight conditions we’ve seen in the commercial property market will continue. These include very low vacancies.”

Viruly says he previously thought that rising building costs — primarily driven by public infrastructure development — would negatively affect private sector development.

“There is now a new dimension with the focus on energy. What I think all of this could mean for the commercial sector is that it will focus developers on existing buildings and renovation of B-grade office stock.”

He says there is old office stock available in the market that already has power. “So developers may opt to focus on redevelopment of these buildings instead of necessarily adding to the total stock with new stock.”

Viruly says indications are still that the residential market will slow down this year, driven by rising building costs, higher interest rates and higher inflation.

Meanwhile, Ken Gerber, director of property services group Broll, says electricity supply and the ability to provide backup power during blackouts has become, overnight, a key consideration for any business with commercial premises, be they in the office, retail or industrial sector. Gerber says the ability to supply backup power to tenants through generators, inverters, battery banks or other sources has quickly become one of the most crucial factors in attracting and retaining tenants, as well as achieving appropriate rentals.

While the provision of backup power has always been a concern for electricity-sensitive businesses such as hi-tech manufacturing, information technology companies and call centres, it has now become a major issue for even the smallest of businesses.

“Providing full backup electricity generation in A-grade office buildings in prime locations will be a huge competitive advantage and a decisive factor in achieving premium rentals,” says Gerber.

Retailers will also seek premises that provide the full electrical backup essential for their normal trading. If they are in a mall that does not offer this, they will be pressing landlords to introduce a solution or facilitate a solution for the client, he says.

Any property that offers a power solution that overcomes this will certainly be favoured by industrial businesses seeking new premises.

“The great news for those buildings which already have full electrical backup is that they can command unprecedented rentals in this market of high demand,” Gerber says.