Office rentals in SA strengthened by 9% in the first quarter of 2011, new data out on Wednesday showed.

According to the latest Rode's Report on the South African Property Market (2011Q2), this was reflected regionally with rentals in Johannesburg and Pretoria decentralized areas up by as much as 15% and 12% respectively, while Cape Town decentralized reflected more moderate growth of just 4%.

In Durban however, the "adventurous" addition of new supply lagged the other cities, and rentals consequently had begun to decline (-2%).

Erwin Rode, CEO of Rode & Associates and publisher of the report said: "Strengthening office rentals could in turn benefit capitalisation rates, with market-rental growth bringing with it better prospects for capital returns.

"However, vacancy rates are still stubbornly refusing to drop, and this may well persuade property investors not to be too hasty in buying property at lower expected income yields. But all in all, the office market in SA is in relatively good nick, considering the state of the market in some developed countries," he added.

The report stated that industrial property was showing signs of a recovery, with vacancy rates seemingly levelling off and rentals once again showing growth of 4% nationally.

"This," said Rode "comes after a sharp cooling in growth and, in recent quarters, even a contraction in rentals."

Port Elizabeth showed the strongest growth (+6%) followed by the Cape Peninsula (+4%). Durban rentals were up by only 1%, while in the Central Witwatersrand market, rentals stayed at roughly the same level of a year ago.

On the residential rentals front, flat rentals showed mediocre growth of 2% nationally compared to a year ago. Even so, flat rentals are at least outperforming house (+1%) and townhouse rentals (-1%).

"Current market conditions can still be seen as an opportunity. However, high vacancy rates need to show a pattern of sustained improvement before we see additional investment activity. I believe we are seeing the beginning of a turning point from a national viewpoint," said Lukesh Govindasamy, head of FNB Commercial Property Finance.

Source: I-Net Bridge