By Thabang Mokopanele

The commercial property market has possibly been one of the sectors most affected by the recession, high unemployment, liquidations, insolvencies and the global economy.

Past years have seen the South African commercial property market outperforming global competitors. This is no longer the case. The mid-year Investment Property Databank figures indicate a drastic decrease in capital values with total income returns below 5%.

The decline can be attributed to negative capital growth, the over-evaluation of properties, rising capitalisation rates, increasing vacancies and a slow- down in the growth of the rental market. Marna van der Walt, CEO of retail management property services group JHI, says: “This decline is expected to continue throughout next year with an upswing anticipated nearer the end of the year. ”

Van der Walt says the group believes next year will see SA experiencing positive economic growth, inflation falling to within the target range, a change in banks’ lending criteria, improved business confidence and an upturn of the global economy. She says there are still some worrying elements that need to be addressed for the country to once again be on stable ground.

“The high unemployment rate, which has increased 6% this past year, will continue to impact negatively on household spending, and the fears of this figure increasing once the government infrastructure upgrade is completed will continue to affect consumer positivity.”

The closing of manufacturing outlets as a result of poor retail performance is also expected to continue into next year.

Adding to commercial property pressure and retail outlets will be the proposed 35% electricity tariff increase.

Van der Walt says business owners will need to recover these costs somewhere and this could result in further retrenchments and scaling down of business operations. “This could lead to a domino effect, vacancies of properties, slowdown of retail growth and further pressure on our unemployment rate,” she says.

“Next year will not be plain sailing by any means and we have a far way to go, if ever, to acquire the highs we experienced over the past years. But, we can anticipate an upturn with new developments, investments and the upcoming 2010 Soccer World Cup, all working towards a better economic environment.”

Rawson Properties MD Tony Clarke says it is now evident that in the major commercial nodes and shopping malls, vacancies are growing.

Source: Business Day