However, SAPOA is of the view that the 35% increase will have a negative effect on the industry, already hard-hit by the recession.
SAPOA supports the interest from Eskom to partner with a private company (30%) in the new Kusile project as this would reduce their funding need and is in line with international trends in the energy industry.
Chairman of SAPOA’s Energy Efficiency Task Team, Douw De Kock says, “Despite indications that the brunt of the recession is behind us, the effects are likely to remain in the longer term, particularly within the commercial property sector and more specific within the retail property sector.” He further explains that the compounding effect of three 35% increases translates into a 146% increase in the cost of electricity by 2012. “Against a two year backdrop of an industry beset with higher than normal arrears, defaults and vacancies, this doesn’t bode well for the recovery of the commercial property sector.”
Adds De Kock, “Facing the prospect of South Africa having the most expensive electricity in the world, it’s reasonable to expect that foreign investors would look elsewhere for investment opportunities, and again this will have a negative effect on the industrial property sector.”
He argues that the low cost of electricity has always provided an attractive and competitive edge for South Africa when energy intensive consumers were looking at foreign investment. Eskom’s increase will negate this.
The real effect of the proposed increases on the property sector will be as follows:
| 2009 | 2010 | 2011 | 2012 | ||
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Current cost | 35% Increase | 35% Increase | 35% Increase |
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cost/m² | cost/m² | cost/m² | cost/m² |
| Business tariff consumer | (small retail tenant) | R 28.40 | R 38.34 | R 51.76 | R 69.87 |
| Large Power tariff | (larger retail tenant) | R 20.80 | R 28.08 | R 37.91 | R 51.18 |
| Business tariff consumer | (office space tenant) | R 16.00 | R 21.60 | R 29.16 | R 39.37 |
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| Retailer |
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Current cost of electricity |
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| Spur |
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R 15,000.00 | R 20,250.00 | R 27,337.50 | R 36,905.63 |
| Large food retailer |
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R 70,000.00 | R 94,500.00 | R 127,575.00 | R 172,226.25 |
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| Landlord liability on super regional mall |
R 400,000.00 | R 540,000.00 | R 729,000.00 | R 984,150.00 | |
Tsakane Shilubane, Manager: Legal Services, SAPOA says, “The biggest concern for the commercial property industry is whether tenants will be able to sustain such huge increases in their cost of electricity.”
De Kock says that in preparation for the increasing costs of electricity there has been a movement towards creating more efficient environments. “But, the cost of retrofits are high and where cash flows do not allow for such expenses, it’s anticipated that such projects will be on hold for the shorter term,” he adds.
Publisher: eProp
Source: SAPOA
