Redefine Properties sees AI as a major threat to South Africa’s rapidly expanding business process outsourcing (BPO) sector, as the technology could automate more than a third of those services in less than five years.
Over the years, South Africa has positioned itself as a hub for BPO services, usually characterised by call centre and other support activities, competing with the likes of India and the Philippines.
As a commercial landlord, Redefine is constantly looking at how various trends could affect the property market and tenancy rates for its portfolio.
It makes sense that the listed real estate investment trust (Reit) is paying attention to the BPO sector, typically a consumer of large office floor plans.
“We have seen the call centre operators, particularly in the Western Cape [from] about two and a half years ago, starting to create big demand for well-located, large floor plans,” COO Leon Kok told Business Day.
“And now that the Western Cape has kind of run out of space, we’ve seen an element of that demand moving up to Gauteng.”
Demand for BPO services has grown from the global trend to outsource IT-enabled services and functions related to marketing, payroll, human resources, customer relations, supply chain management and others.
BPO operations rely heavily on uninterrupted uptime and high employee density. Redefine targets this sector through specific infrastructure configurations at locations such as its Lakeview Office Park in Roodepoort.
Kok said BPO operators are “a good absorber of space, particularly in lower-grade properties because, typically, a call centre operator would look to densify the space. In other words, using far less space per individual employee and they would look to maximise utilisation of floor space”.
The local industry, supported by the government, has ambitious goals to create as many as 500,000 jobs by 2030. The expectation is that the industry will be worth $3.6bn by 2027.
‘Robotic application’
Yet, Kok warns of AI disruption to the sector.
“The one risk factor we need to highlight, though, is that within the BPO space, certain of those call centre operators, in our view, would be susceptible to the risk of AI. Our view is that AI would potentially have an impact on the repetitive, low-skill duties that could easily be performed by a robotic application,” he said.
“So it’s important for us to manage our concentration risk within those operators and again for us to highlight and focus on our premium-grade, well-located properties which would attract a different kind of user which is less susceptible to the influence of AI.”
Recent research by Caribou and Genesis Analytics, in partnership with the Mastercard Foundation, found that 40% of tasks in Africa’s tech outsourcing sector, including BPO, could be automated by 2030.
Some see this trend as a threat to jobs and the space such operations require, while others expect new pathways for workers to move into higher-skilled, higher-paying roles.
Redefine reported revenue of R5.59bn for the six months ended February, up 3.7% year on year, while distributable income per share rose 6.9% to 27.29c. It increased its dividend by the same margin, reflecting improved earnings stability.
HEPS were 85.8% higher at 34.24c and the net asset value per share increased to 815.09c. Redefine’s loan-to-value ratio improved to 40.3% indicating reduced balance sheet risk.
Tenants across the group’s portfolio are likely to avoid sudden rental spikes — the company said lease increases are expected to remain largely predictable and tied to existing contracts.