This should lead to more listings of directly held property on the real estate sector of the JSE Securities Exchange SA.

The report says listed property and directly held property showed a value gap of about 5% during the fourth quarter of last year. This followed a consistent narrowing of the value gap over the previous three quarters as investors' appetite for listed property improved, says Dirk de Vynck of Rode.

The report said capitalisation rates the nonlisted property equivalent of the forward yield on equities continued to weaken, which had been evident since the beginning of 2001. "The reason for this can probably be found in the cyclical oversupply of nonresidential space, maybe exacerbated by the increase in interest rates last year" says De Vynck.

Community shopping centres' capitalisation rates increased from 13% to 13,3%, whilst for neighbourhood shopping centres the rate increased from 14,2% to 14,5%. These are big jumps for one quarter, which seem to indicate an oversupply in these types of shopping centres, says De Vynck.

At the other end of the spectrum, shoppers prefer the large regional shopping centres to community and neighbourhood centres, says De Vynck.

He says a glimmer of hope for the nonresidential property industry comes from the industrial market, which is showing the first signs of a turnaround. The turnaround has been helped by a gradual increase in manufacturing production since 1999.

It was further boosted by the sharp devaluation of the rand's external value last year and a slowdown in the building of industrial and warehouse space.

The turnaround is especially evident in industrial rentals in the Cape Peninsula and Port Elizabeth, and to a certain extent in many of the central Witwatersrand's and Durban's industrial townships.

On the office market the report says there are early indications that the debilitating effect of the oversupply of office space on decentralised rentals could be at its end.

It will take some time before investors are convinced that there has been a turnaround in the oversupply situation, and ultimately before office capitalisation rates start improving, says De Vynck.

He says prime office rentals in the central business districts of Cape Town and Durban increased for the second consecutive quarter.

In Johannesburg and Pretoria real rentals were still lifeless.