Consumption explains why township and rural economies deserve far greater attention than they have historically received.
In a thought leadership article titled “Why resilience in property starts long before the next crisis”, Redefine Properties CEO Andrew König suggests that the expansion of formal retailers, banks, and service providers into these communities is driven by something far more fundamental than simple population growth: the steady formalisation of economic activity and expanding consumer participation.
He says for property investors, this is about more than identifying the next retail opportunity.
“It is about recognising where demand is emerging and looking beyond traditional commercial nodes to parts of the economy that have historically been underrepresented in institutional property portfolios.”
Earlier this month, the National Youth Development Agency (NYDA) said decades after the advent of democracy, economic opportunities remain concentrated in metropolitan areas, while many township and rural communities continue to be characterised by inadequate infrastructure, weak transport connectivity, fragmented land-use planning and limited productive investment.
The agency established primarily to address challenges faced by the nation’s youth said spatial inequality continues to influence virtually every aspect of young people’s economic participation.
It adds that young people living in township and rural communities often incur higher transport costs to access employment opportunities, experience weaker digital connectivity, face greater barriers to accessing finance, and operate within smaller consumer markets.
These disadvantages reduce business competitiveness and limit opportunities for enterprise expansion.
Diversification is not simply about investing across borders
According to Redefine Properties, the same principle applies geographically. The company, which owns, develops and manages property, says diversification is not simply about investing across borders; it is about building exposure to different economic cycles and risk profiles.
It said while South Africa remains their home market and greatest long-term opportunity, Poland provides stability, lower volatility and a different economic cycle.
“Together, they create a more balanced portfolio than either market could deliver independently.
“Building resilience, however, extends beyond owning the right assets. It also requires maintaining the flexibility to make strategic decisions when market conditions change.”
Just as investors have begun to feel more optimistic about South Africa’s outlook, with inflation moderating, financing conditions gradually improving and greater stability returning to the electricity system, the global environment has once again become more uncertain.
Geopolitical tensions remain elevated, trade relationships are being redrawn, and markets continue to respond quickly to every new source of uncertainty, the company says.
Property: a reflection of economic activity
Property has always been a reflection of economic activity, says Redefine Properties. It says buildings derive their value not simply from location or design, but from the businesses, consumers and communities that use them.
“Retail centres thrive when consumers continue to spend. Industrial and logistics assets benefit as supply chains expand and goods move through the economy. Office demand grows when businesses invest and create employment.”
The property owner, developer and manager says understanding where economic activity is heading is therefore every bit as important as understanding the assets themselves.
This philosophy has shaped the evolution of our own portfolio over many years, König says.
He adds that although South Africa and Poland differ significantly in their economic structures and stages of development, they share an important characteristic: both are fundamentally consumption-driven economies.
“That insight has informed a gradual shift towards sectors supported by everyday economic activity while reducing exposure to areas, such as services, that tend to fluctuate more sharply with business confidence.”
The CEO says many of the portfolio decisions that underpin their business today, including simplifying the portfolio, disposing of non-core investments and exiting certain markets, were initiated well before the challenges of recent years emerged.
He says those decisions were not responses to a single crisis, but part of a longer-term effort to strengthen the business and retain greater control over its strategic direction.
The significance of financial discipline
The company says financial discipline is equally important. The listed property sector has been reminded repeatedly over the past decade that resilience depends as much on balance-sheet strength as it does on asset quality.
In an environment where capital has become more expensive, and refinancing has become more complex, preserving financial flexibility creates strategic options.
“Businesses with strong balance sheets can invest when opportunities emerge, while those under pressure are often forced into defensive decisions at precisely the wrong point in the cycle.
“Perhaps nowhere is the relationship between resilience and opportunity more evident than in SA’s evolving energy landscape,” Redefine Properties says.
It adds that for years, property owners approached energy primarily as a risk management challenge, investing in back-up generation and alternative power sources to protect tenants from load shedding.
Increasingly, however, those same investments are creating entirely new commercial opportunities, it says.
“Industrial and logistics assets illustrate this particularly well. Their extensive roof space makes large-scale solar generation commercially viable, while relatively modest on-site electricity demand creates the potential to participate in power purchase agreements and wheeling arrangements as South Africa’s electricity market continues to evolve.”
What began as a defensive investment is gradually becoming a new source of value, it adds.
Improving energy security, ongoing infrastructure reform and a more supportive financing environment have strengthened confidence, but they have not eliminated uncertainty, König says.
If anything, he says they reinforce the importance of building businesses that can participate in improving conditions while remaining resilient when the next external shock inevitably arrives.
“No executive can accurately predict the next geopolitical flashpoint, financial crisis or technological disruption. The competitive advantage lies elsewhere. It comes from building a business capable of adapting to a wide range of outcomes while remaining anchored to the long-term drivers of demand.”
Distinguishing between temporary shocks and permanent shifts in the economy
The CEO says every market cycle creates new reasons to become distracted. He says the challenge is to distinguish between temporary shocks and permanent shifts in the economy.
“The property businesses that outperform over the long term will not necessarily be those that predict every disruption correctly.
“They will be the ones that entered each period of uncertainty already prepared for it, having built resilient portfolios, maintained financial flexibility and remained focused on the enduring forces shaping how people live, work, consume and invest.”
