Economic Overview mid 2000

Posted On Friday, 15 February 2002 02:00 Published by
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Despite tight economic business conditions for the first half of 2000, the property market in South Africa has been stable - office vacancies have been declining marginally since December last year, industrial rentals appear to be moving out of the doldrums, and retail development sentiment continues to remain positive. With positive and improved economic prospects in 2001, the property market is set to improve significantly.

Despite tight economic business conditions for the first half of 2000, the property market in South Africa has been stable - office vacancies have been declining marginally since December last year, industrial rentals appear to be moving out of the doldrums, and retail development sentiment continues to remain positive. With positive and improved economic prospects in 2001, the property market is set to improve significantly.

This is the general picture emerging from research conducted by JHI Real Estate's research division.

Industrial rentals began moving out of a trough during the second quarter with the improved rental performance being largely attributed to a low base. However, it appears that much of the rental growth is being experienced by small companies; furthermore manufacturing confidence needs to improve substantially if industrial rental levels are to grow and if export-led growth is to positively impact the sector.

Average Prime Industrial Rentals: 2nd quarter 2000. (Rode)
  250m2 500m2 1000m2 2500m2 5000m2
Cape Peninsula R 18.16 R 14.50 R 13.40 R 12.01 R 10.75
West Rand R 16.25 R 11.27 R 9.75 R 9.45 R 9.40
Durban Metro R 16.22 R 14.30 R 12.86 R 11.75 R 10.20
East Rand R 15.29 R 13.20 R 11.77 R 10.88 R 9.91
Central Wits R 14.79 R 17.20 R 14.38 R 12.34 R 11.19

Industrial performance has remained fairly constant over the past few years with the exception of last year when returns fell to a dismal 0.5%. 'However based on SAPIX figures, industrial property investments have demonstrated superior returns over some of the other sectors', comments JHI Chairman, Les Weil. In June 2000, for example, almost 40% of the 225 000 square metres of planned space comprised industrial and warehousing projects.

In the office sector, the Western Cape evidenced the strongest total returns over the past five years (14.4% per annum) compared to 8.4% and 5.9% in Gauteng and Kwazulu Natal, respectively. JHI contrasts the poor performance of the Johannesburg CBD (-19%), Pretoria CBD (-4%) and Durban CBD (2%) over 1999 with that of Cape Town's city centre which achieved a positive annualised return of 12.4% over the past five years.

Not surprisingly, Cape Town's city centre office vacancies remain the lowest of all the CBD's nationally at 8.13% for the second quarter, according to SAPOA.

Vacancies in the decentralised office nodes of Johannesburg, Durban and Cape Town suburbs have been declining since December 1999. Sandton is the notable exception where vacancies have started to rise and it may be that supply is temporarily outstripping demand; this may however only be reflecting lead and lags in the development cycle.

Weil comments that office rentals have remained firm. He expects a stronger domestic economy to stimulate further demand for office space and in certain cases new premier rental benchmarks are being realised. Demand for hi-tech space is growing on the back of the expansion in the service sectors, particularly the financial and IT sectors, and is expected to continue into 2001. This follows a worldwide trend as indicated by JHI's international marketing network, ONCOR International.

The market has remained generally cautious regarding new speculative commercial development and take-up rates have moved in line with available space.

JHI research highlights the view that rising disposable incomes, reduced relative household indebtedness and lower real interest rates are all factors which support consumer spending and will help boost activity in the retail property market over the next few months. However, JHI Research has a concern that savings levels are still dropping and are too low to sustain real and continued growth in retail sales.

The real value of retail plans passed in the second quarter of 2000 increased in all but one of four major South African cities, with Pretoria showing the largest increase in the value of building plans passed.

Table: Retail building plans passed over the past 3 quarters.
Retail Building Plans Passed - R millions        
  Cape Town Durban Wits Pretoria TOTAL
May-00 33,191 2,441 5,573 3,500 44,705
Jun-00 39,024 790 8,757 9,893 58,464
Q2 percent change 17.57% -67.64% 57.13% 182.66% 30.78%

Discounting Durban's negative showing partially attributed to the distorting influence of Umhlanga's Gateway project, building plans passed represent positive sentiment for future retail investment in the major metros.

In the light of the general state of the economy, retail rentals have shown very little movement during 2000 and even the best retail centres are not seeing rental growth of more than 10%.

Once perceived as a threat, e-commerce offers alternative distribution and marketing channels that can serve to boost retail activity overall and stimulate demand within shopping centres. Investors will be keen to consolidate the 16.8% total return netted by retail property (21.9% for regional shopping centres) over the past five years and are advised to consider the strategic advantages for shopping centres within an e-commerce environment.


Publisher: JHI
Source: JHI

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