The current geopolitical tension is drastically reshaping the global economic outlook, and South Africa is not immune. Both businesses and consumers are feeling the effects of the conflict escalation in the Middle East, with oil prices spiking to above $110 a barrel.

The commercial property market faces a more complex operating environment. Rising energy costs affect everyone. In the commercial real estate sector, there’s more pressure on tenant affordability, rising maintenance costs, and pressure on businesses (and tenants) in general.

However, despite these uncontrollable odds, things are still looking good for local businesses.

Earlier this year, there was the announcement of a stabilising GDP, driven by improved energy supply and stronger exports. The easing of loadshedding has also helped boost productivity, and there’s a stronger general business and investment sentiment all-round.

It’s also a municipal election year, so all eyes will be on South Africa. This can only stand to benefit us when it comes to infrastructure upgrades.

That said, some caution is advised. The knock-on effects of the oil price will be felt, but there are ways to ‘future-proof’ a portfolio.

The industry fought to regain momentum following the pandemic and came back stronger. During that time, many landlords pivoted and collaborated more closely with tenants to navigate the storm.

Successful landlords embraced new strategies such as sub-leasing, transforming and configuring spaces, selling advertising space on buildings, purchasing vacant and distressed properties, and leaning into the industrial craze with more e-commerce businesses popping up to accommodate online orders.

Now, in a time of uncertainty, and with the timeline still largely unknown, we can use some of what we learned during that time as a blueprint.

Key Tips for Landlords and Tenants

 1. Diversification is key

A portfolio concentrated in one sector or tenant type behaves like a single asset in a downturn. This is where diversification comes in – a lesson that many learned over the lockdown period, when only certain businesses needed (and could successfully operate) in their spaces.

Where possible, and when looking at investments, landlords need to be more flexible, spreading their exposure across various sectors, locations, and tenant profiles.

Industrial assets linked to logistics may benefit from supply chain shifts, while certain retail and office segments may come under pressure as consumer spending tightens. Spreading exposure across these segments helps balance performance.

Lease structures and tenant resilience also play a role. A mix of long-term leases for stability, and shorter leases for flexibility, allows investors to respond to inflation and changing market conditions.

In uncertain markets, the real risk is tenant failure rather than vacancy. Tenants with diversified income streams or essential-service offerings are far more likely to withstand economic pressure.

The reality, however, is that for those landlords already dealing with failing tenants where diversification isn’t yet possible, communication and compromise are key. Try to adopt an open approach by restructuring terms and brainstorming ideas together.

2. Manage affordability

Rising fuel and energy costs directly affect tenants, as higher transport costs and pressure on disposable income impact rental affordability.

Landlords need to be realistic about what tenants can sustain. In some cases, flexibility in lease structures can actually protect long-term income. Mechanisms such as turnover-based rentals or phased escalations allow tenants to absorb short-term shocks while maintaining occupancy.

However, these must be carefully balanced with financial safeguards.

While structure and strategy are important, financial discipline remains the backbone of resilience. Liquidity is your shock absorber. Many investors don’t fail because their assets are poor. They fail because they run out of cash. You need to maintain sufficient reserves to cover operating costs and debt obligations.

At the same time, operational execution is paramount. Strong tenant relationships and proactive management make all the difference. Landlords who respond quickly to challenges are far more likely to retain tenants and protect income streams.

Also, when it comes to repayments on commercial properties, in times like these, it’s important that landlords have open lines of communication with lenders.

Mortgage repayments on commercial properties are huge. If you are in crisis, it’s important to reach out to the relevant provider and discuss your options. These could include the restructuring of your loan and payment terms, debt restructures, entering into a potential joint venture, etc.

3. Stress test (if you can)

Investors are advised to build portfolios with worst-case scenarios in mind, while regularly testing how they would perform under conditions such as rising vacancies or higher interest rates. If your portfolio can withstand three to six months of vacancy, you’re in a good position.

Resilience in a local context includes structural challenges such as energy instability and infrastructure constraints. Energy security has become a key differentiator. Properties with solar, back-up power, and water systems are more attractive to tenants and tend to retain value more effectively.

However, it’s important to be realistic. Many landlords, particularly small landlords, are up against major liquidity constraints, so this approach may not be feasible right now. It’s something to keep in mind for future investments and assets, and to apply when the time is right.

4. Adopt a proactive investment approach

A more stable financial system provides a stronger base than in previous cycles, but success will depend on a more hands-on approach. We have mentioned it time and time again, and it works.

Working closely with your tenants, advisors, and brokers will make all the difference. Those who did so during 2020 built robust portfolios, future-proofed to stand the test of time – and they’re still reaping the rewards.

Passive ownership is far riskier in an era of uncertainty. Investors need to think like operators by actively managing assets and adapting strategies in real-time.

What we’re seeing globally is a reminder that external shocks are inevitable. The portfolios that succeed are those built to absorb that shock through diversification and adaptability.

 

WRITTEN BY RICARDO DA SILVA

Ricardo da Silva is a corporate real estate expert.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.