By Reginald Tachie-Menson

Office space is a sensible investment going forward, according to Ervin Rode, CEO of Rode & Associates.

"Office market is in reasonable shape given the circumstances," Rode said, highlighting the remarkable resilience the office market has had through the weak economy. He was speaking at the Johannesburg leg of the annual Rode conference.

He emphasised that the residential market was substantially overpriced and from an investor's point of view was not the best option. Ideally, for house prices to maintain stability, levels should come down between 10% and 20% in real values over four to five years. At current levels prices will end up falling off a cliff.

Rode noted the impressive performance of nominal grade-A office rental growth, which was recorded at 15% in Johannesburg and 12% in Pretoria.

He stressed that office prices are cheap and vacancies in the suburbs of Johannesburg have peaked.

As a result of the high uncertainty in the world, Rode said that the outlook should be taken on the basis of scenarios.

If office rental growth is examined in terms of a baseline view and a worst case scenario, there is little cause for concern. Rents would grow by a rough average of 6% each year for three years in the worst case. Thus Rode said, "there is no reason for panic."

"The current crisis is not a debt crisis but a consumption crisis. We are facing a problem in which there is overindulgence in consumption," Rode said.

With a medium term outlook in mind, Rode mentioned some prospects for SA's economy.

He said that lower growth is expected in the wake of the low world growth and infrastructure constraints in SA.

However, analysts point to a China factor. China's performance may be able to ameliorate the impact of the stagnating world economy as a result of SA's commodity-exporter status.

Rode also highlighted taxes and tariffs rising in order to catch up to backlogs. This means that disposable income will come under pressure for a few years.

From a baseline view, Rode said that GDP growth is set to grow at 3.8% in 2011, 4.0% in 2012 and 4.1% in 2013. He did however suggest that these figures were very optimistic and perhaps required revising.

Source: I-Net Bridge