Andrew Bradford, Director of commercial and industrial property consultancy Bradford McCormack has a short answer - yes, no and maybe. “There is no doubt that CRE has fared better than the residential market over the last few years due to the stricter lending criteria our banks historically applied and the fact that investors in this sector are long-term players with ‘more skin in the game’. With larger equity contributions, investors in CRE are typically more risk averse and cautious and this sector of South African property has had fewer ‘buy to let’ opportunists looking for short term gains. Sure, tenants may have defaulted or even declared bankruptcy and rentals are under pressure as landlords struggle to keep their tenants, but with appropriate debt to equity ratios and lower interest rates these property owners generally have the ability and resources to weather the storm” says Bradford.
 
Is the market coming back? Bradford claims that it didn’t slip much in the first place. “Things have been slightly quieter, especially on the investment side, with cash-laden investors struggling to find quality assets”. He adds that tenants wishing to move need a compelling reason to relocate knowing that their landlords will offer attractive rental rates upon renewal. “No landlord wants to lose a tenant in this market,” he says “which is favouring deals in existing buildings rather than above market rentals in new developments”.
 
Year on year rental growth is lower than previously anticipated as a result of both an increase in vacancies and the ability of tenants to pay higher rentals. “Tenants and occupiers look for value which at present is found in existing buildings rather than new developments. One just has to look at the level of building plans passed to realise that developers are still struggling to make projects viable at current market rental rates” says Bradford.
 
There are some interesting trends emerging in this market. For some landlords and funds the focus has been on surviving rather than market advancement. They have done this by cutting costs, renegotiating supplier contracts, improving tenant relationships and increasing organisational efficiencies. “For example, landlords are working with more transparency with their tenants when it comes to managing operating and energy costs” he says. There are still a number of factors that will dictate whether the answer “yes, no and maybe” can be converted to a definite “yes”.
Publisher: eProp
Source: BMA