South African unit trust company Stanlib on Monday said they remain positive on the office and industrial property markets in South Africa, but feel that some retail segments could be under pressure in view of continued consumer belt-tightening.

"Vacancies might rise in smaller centres with high exposure to line shops.

"Regional centres in which big national chains are strongly represented look less vulnerable,"said Keillen Ndlovu, co-head of the Stanlib property franchise.

"This suggests that a stock-picking approach will be rewarded, with the accent on property companies with quality rental streams from their industrial and office portfolios backed by contributions from strong regional performers in the retail space."

Ndlovu added that some investors deserve credit for holding their nerve and their breadth of view following the 35% crash in listed property values in the first half of last year.

"Those who cut and run sometimes took significant losses," noted Ndlovu.

"Those who refused to budge have seen values recover to a point only marginally down on pre-crash levels."

Stanlib said that investors' nerves had been stiffened by the growing realisation that listed property deserved to be treated as a separate asset class with an embedded place in a balanced portfolio and the belief that even low economic growth would sustain rental flows.

This would tend to prop up the level of income from listed property investment even if share prices dipped.

Ndlovu noted that listed property had an inverse relationship with interest rates.

Expectations of rate cuts in the second half of 2008, confirmed by the 50 basis point fall in December, encouraged property's comeback.

Ndlovu believes expectations of further rate softness could maintain the recovery.

"We forecast a slide of 350 basis points in rates during 2009," he said.

"This suggests that share valuations could strengthen for some time to come.

"We also forecast income growth of about 9.8%, resulting in a forward yield of 9.7%; a number that is about on a par with cash and well ahead of the 7.5% available on bonds."

Ndlovu, however, cautioned against the notion that a simplistic sector play will deliver strong results.

Source: I-Net Bridge