A recent report released by the Alliance Group showed that in the third quarter of 2009 there were some signs of increased sales activity in commercial property industry, the group said on Tuesday.

Even so, the market was still far quieter than a year ago.

According to the report, the bank's stricter lending guidelines had constrained the market as had increased concerns about tenants.

According to October's Alliance Commercial Research Report which analyses the burgeoning auction industry, investors who can raise financing or have access to cash are now looking for value in anticipation of a rebound in commercial property values over the next 24 months.

The report noted that there had been a bottoming out of sales confirmation rates over the last eight months, with a marginal decrease in the reserve sale price variance.

"Both these indicators suggest an improvement compared to records from early 2009," said Alliance's CEO Rael Levitt.

Overall, while there appeared to be increased activity in the market, commercial property sales at auctions performed well below August 2008 figures, just before the international credit crises began.

"Sales rates in 2009 have decreased year-on-year, however, the national average sales rate for Alliance's August sales have increased slightly, with a 67% success rate at recent multiple-auction sales in Johannesburg," said Levitt.

"The low sales or confirmation rates have largely been due to limited credit supply and extremely selective demand patterns, which are a function of credit supply," explained Gavin Adie, who heads the Alliance Group's Commercial Research Team.

Rental income and tenant profiles, as well as the location of a property, have become key factors determining price and the availability of finance.

"However, although properties that are not highly rated in this regard are receiving softer yields, it is interesting to note that 56% of all commercial property sold has been vacant.

"This reflects both the current commercial market climate of increased vacancies, and the growing level of distress in corporate liquidations.

"The high percentage of vacant property sold may also be a reflection of where real opportunity exists, and hence demand."

In the last quarter, several liquidations including Cape-based City Capital and King Financial Services, will bring some distressed inventory on to the market.

According to the report, there was also an emerging trend of increased sales rates for higher value, prime stock.

"We are finding that dependable cash flow and strong covenants are attracting the highest prices and strong yields.

"While 44% of all property sold was tenanted, the average selling price was relatively higher at R7.5 million with a number of sales noted above R30 million," said Adie.

The purchaser profile for such property has generally been high net worth individuals who have not been restricted by tighter credit policies.

The commercial property sub-types which have shown the greatest level of activity were stand-alone retail, industrial warehousing, blocks of flats and CBD office and non CBD prime office.

Levitt said the last research report identified the emergence of increased market activity, a process of 'thawing' and new, higher, required return levels.

A trend, he said, that appears to continue.

The average sales reserve price variance has decreased by 10% month-on-month.

"This is significantly better than those recorded during the turning point of the market in the latter months of 2008, when extreme volatility and frozen credit markets resulted in far higher spreads and more unrealistic seller expectations.

"Quite simply," explained Levitt, "last year many commercial sellers were looking for unrealistic prices and couldn't get them.

"The recession has brought a dose of reality to many sellers who are now accepting lower prices, thus increasing sales activity."

Although the data sample of income-generating properties reduced moderately over recent months, average initial yields remained steady, holding back from their softening trend over the first two quarters of 2009.

The lowest average yield was again experienced in the Western Cape at an average of 10%.

Gauteng followed at 12%, with KwaZulu-Natal recording the top average yield of 14%.

Source: I-Net Bridge