The speculation was sparked by the issue of separate cautionary notices by Growthpoint and Primegro on the same day earlier this month.

Barnard Jacobs Mellet property industry analyst James Templeton said the speculation made some sense, especially considering the aggressive expansion of Growthpoint.

Primegro's high debt levels also supported the speculation, he said.

Growthpoint's property portfolio commands a relatively low gearing level, which made it a desirable merger candidate given Primegro's highly geared assets.

The Investec-managed property fund, Growthpoint, has been on the acquisition trail, boosting its property portfolio to about R2bn late last year.

Growthpoint's management has publicly declared it actively sought expansion opportunities.

Investec Property Group funds accountant Etienne De Klerk reconfirmed the expansion strategy. 'We are currently in negotiations as indicated in the cautionary notice,' he said.

The group hoped to make an announcement within the next two weeks which could radically alter its complexion, he said.

He said Growthpoint sought opportunities to beef up its retail exposure.

This is in line with speculation, as Primegro is known to be a retail property specialist.

Primegro joint MD Martin Ettin also declined to comment on the speculation but said the group was looking at several options and was involved in various discussions.

'There are a lot of opportunities in this market which we are looking at, to add value to our shareholders,' said Ettin.

Primegro concluded a major transaction last year, buying a R1,2bn retail portfolio from Richway Retail Properties.

Primegro was praised for the deal, but there have also been concerns it left the group with a weak balance sheet. A merger with Growthpoint could address this issue. Combined Growthpoint and Primegro assets make a portfolio of about R4bn.

Growthpoint's unit price was unchanged at 570c yesterday.

Primegro's units were also unchanged at 600c.