While load shedding has long been the clearest evidence that South Africa is in the midst of an energy crisis, there is more to that crisis then just uncertainty of electricity supply. The recent significant increases in the oil price, which filtered down to consumers and businesses in the form of fuel price hikes, is another example of the broader energy crisis facing not just South Africa, but much of the world.
According to Malusi Mthuli, Provincial Head KZN: FNB Commercial Property Finance, the effects of this energy crisis are not only being felt by households. Businesses, industries and entire economic sectors in South Africa are coming under increasing pressure as a result of electricity insecurity and stellar increases in fuel costs. And the country’s property sector is certainly not immune to these pressures.
“While the link between energy and property may not be immediately apparent to most people, it is actually very significant,” Mthuli explains, “and the impact of construction downtime due to power outages, sharp spikes in material costs due to fuel price hikes, and growing demand by buyers and tenants for buildings with enhanced energy security, has been felt across the sectors, most notably by developers, construction firms and landlords.”
And Mthuli says that the challenges are unlikely to end anytime soon, given that energy initiatives often take a long time to implement, and are also very costly,” he explains, “which means that energy costs in general are likely to keep going up for the foreseeable future.”
All of which begs the question: What can South Africa’s property sector do to survive this protracted energy crisis and remain viable and profitable through it?
While there’s obviously no simple answer to that question, Kyle Durham, Head of Sustainable Finance and ESG Solutions for FNB is adamant that there is one thing that stakeholders in the sector can, and should do to navigate their way through the current energy challenges – and that is to focus intently on sustainability.
“While you’d be hard pressed to find anyone in the property sector who can find anything positive to say about the energy crisis,” Durham says, “it has had the very positive effect of putting the need to prioritise sustainability as arguably the only way for many property sector participants to survive in the coming years.”
Durham points out that the shift in awareness around the importance of sustainability as a way of ensuring survival and sustainable profitability began in earnest during the Covid-19 pandemic, but that it has continued into 2022 and is, in fact, gaining momentum. “The energy crisis, and particularly the rising input costs it is causing, has awoken most South African property sector participants to the fact that sustainability is not just a moral conversation they’re expected to have; it is a strategic business imperative,” Durham emphasizes, “and as such, sustainability is moving rapidly to the top of the agenda in most business and boardroom meetings.”
And not a moment too soon, if Durham is correct. “While few people and businesses would agree, the truth is that energy is still relatively cheap in South Africa,” he says, “but it is going to continue becoming more expensive, and the only way for property sector stakeholders to mitigate the resulting cost challenges is to entrench sustainable thinking into their business and investment decisions now, with a view to achieving all-important cost savings in the future.”
Mthuli agrees, and says that while such an investment into more sustainable building, operational and management practices may be relatively expensive, the long-term savings it will deliver will far outweigh that cost. He also points to another compelling reason why sustainability needs to dominate thinking in the property sector right now, which is the rapid rise in energy efficiency regulations, and tenant expectations, that will increasingly demand such sustainability-led practices.
“Energy Performance Certificates are fast becoming an important factor in building and finance approvals,” he says, “and coupled with growing demand from residential and commercial tenants for energy efficiency in the buildings they rent, the sector has no option but to prioritise sustainable transformation in the coming years.”
“FNB Commercial Property Finance has long recognised this sustainability imperative for the country’s property sector, and we have invested significant time and resources into positioning ourselves as a valuable partner to builders, developers, landlords and investors who are ready to integrate sustainability into the way they think, act and invest, Mthuli says.
“Already, we are seeing the immense benefits of such a sustainability led approach being realized for many of our property clients,” he concludes, “and the obvious resilience that it is also building into their businesses is of even greater long-term value.”
INFO SUPPLIED BY FNB.
