The property market has followed a consistent cycle of oversupply and undersupply, expansion and contraction, recession and boom, says Viruly partner Pauline Larsen. But the different subsectors follow it at different times and speeds.

The equilibrium line is the seven-year average vacancy rate for each property sector. Certain types of retail and most of the office market are oversupplied. This is because they have far more vacant space than their seven-year averages.

High-rise offices are through the worst patch and low-grade industrial properties and warehousing are close to equilibrium. As they pass through equilibrium, rents and yields will start rising fast. Speciality retail centres and regional shopping centres have less vacant space than their seven-year averages.

"Offices and industrial property appear to offer investment opportunities," says Larsen's partner, Francois Viruly. "Investors could take a view that if they bought these properties now at their present incomes and vacancies, they would almost certainly get substantially better income in the near future."

He says smart tenants who follow the property cycle will know when to start renegotiating their leases to pin down low rents in a time of fast-rising rents.

Former Marriott director David Green says property is at the threshold of a growth phase, despite a lack of hard evidence. It was this that led to his recent resignation from Marriott and his purchase of Gauteng's biggest commercial brokerage, Pace. "The market is turning, yet the skills required to serve a growing market are already stretched."

It is these skills he has bought in Pace, which he feels will give him a competitive advantage over the next decade of growth.

If he is right, it will affect the dynamics of the property cycle. The cycle indicated in the graphic will rise in relation to the equilibrium line. So demand for space in subsectors below the line will speed their advance towards equilibrium. Subsectors above the line will drop towards it more slowly.

For instance, regional shops are in a mature phase and may follow community and neighbourhood retail into overdevelopment. Last year, critics were warning developers in the Western Cape that they were putting up too many shopping centres. Now the newest centre, Capegate, has increased its size from 36,000 m² to 42,000 m² because of demand from retailers bullish about growing consumer spending.

Financial Mail