Many commentators expect the interest rate to be around the 12,5% mark by year-end, with the possibility of even lower rates into 2004.

Some even predict a single-digit prime rate before heading up higher into 2005, says Andrew Teixeira, property management director: Gauteng for JHI Real Estate.

"This makes debt cheaper to service," he says, "and results in positively geared scenarios, making the growth of debt vehicles such as Property Loan Stocks that much more compelling. Property Unit Trusts will also be encouraged to take advantage of the permitted 30% maximum gearing.

Naturally a careful eye will need to be kept on forward positions, which players will derive from the yield curve."

Teixeira says that as far as the commercial property market is concerned, a modicum of equilibrium is coming through on the office front, but certainly in the most important markets - Johannesburg and Cape Town in particular - some fundamental improvements to take-up will be required and it will be some time before speculative developments take place.

"However, good quality offices and well-tenanted office assets are still attracting the interest of property funds and their vendor agents, who are seeking to grow their market capitalisation positions.

"In fact, competition for quality stock is itself driving down yields, and although some listed property funds are trading at even lower comparable yields - making the direct/listed conversion factor that much more appealing - this differential is being slowly eroded due to the competition."

Teixeira adds that lower interest rates tend to drive down listed yields quicker than they do with directly held property.

So, on balance, the race for rapidly growing funds will remain feasible and an important dynamic of the commercial property terrain into the medium-term.

"With cheaper cost of capital, one will expect businesses to begin an expansion phase - this in turn could translate into demand for more space thus serving to reduce the high vacancies in many prime markets around the country.

"Similarly, we expect business trading out of industrial and retail premises to be boosted. Retail markets in particular should be fuelled by positive consumer sentiment. The industrial export markets have taken a beating from the stronger rand, but those products and processes that seek to beneficiate will no doubt see their import component costs come down, thus potentially assisting demand for hi-tech and related industrial space." - The Star