StatSSA building statistics for May 2019 were released today, and a feature of these continued to be very strong growth in residential buildings completed.
For the month of May, the number of units completed showed an impressive year-on-year growth rate of 56%, following on the prior month’s 24.4%.
Due to data volatility on a monthly basis we prefer to smooth using a 3-month moving average growth rate. The number of units completed for the 3-months to May 2019 grew by an impressive 71.86% too.
What has fueled this sharp surge in growth? It appears to be a lagged impact from last years’ “Ramaphoria”, that brief period of positive sentiment that followed the election of a new president of the ruling ANC late in 2017, followed by Mr Ramaphosa becoming the new national president.
At that point we saw a surge in the growth in number of building plans passed, and this appears to be the lagged impact of that surge coming through in the form of strong completions.
However, the number of units plans passed for the 3 months to May showed year-on-year decline of -19.14%, and has been in year-on-year decline since around mid-2018. This is usually a leading indicator of building completions about to experience a near term decline, which would be more in line with that leadership change excitement having long since worn off, and an economy with little or no growth to speak of.
Non-Residential Building Activity
On the non-residential side, we have seen surprisingly strong completions growth in the area of Office Space, despite very significant increase in recent years in this category’s national vacancy rate.
On a monthly basis for May, square metres of office space completed recorded very strong year-on-year growth of 207.7%, industrial and warehouse space an also strong 133.2%, while Retail recorded a slight decline of -1.4%.
However, due to the highly volatile nature of commercial building completions, with one major project able to influence monthly stats hugely, we prefer to use a 12-month moving average year-on-year growth rate to smooth the data and make better sense of it.
Office Space completions set for slowdown
For the 12 months to May 2019, the year-on-year growth was +20.23%% for Office Space square metres completed.
This still seems surprisingly strong given that the national office vacancy rate has risen considerably in recent years according to MSCI data.
But Office Space completions look set for near term slowdown, with the square meterage of plans passed for this category over the past 12 months less than half the level around 2014, and the 12 months to May’s plans passed showing year-on-year decline of -18.94%
Retail Space square meterage completed declined sharply by -43.29% year-on-year for the 12-months to May, which was to be expected given the pressures that have been mounting on retail over recent years, in the form of online shopping and more significantly a financially strained consumer.
And square meterage of Retail Space plans passed shows more weakness to come, with the 12 month average showing year-on-year decline of –44.92%
Finally, the seemingly best of the sectors, Industrial and Warehouse Space completed grew slightly positively by +0.94% using the 12 months average to May. And its plans passed number suggests some semblance of near term stability, also growing slightly positively to the tune of +2.64%
The Industrial and Warehouse Property Market, while also pressured by a weak economy, has been the best performing major property sector in recent times, and its new building activity looks set to remain reasonably stable, judging by plans passed.
However, for the rest, the Office Market has seen rising vacancies for some time, according to MSCI data, while Retail too has been under pressure due to an increasingly constrained consumer. These 2 non-residential sectors, along with residential where plans passed are also in decline, look set to see building completion levels decline in the near term