October 12, 2004

By Dirk De Vynck

Cape Town - There was now little doubt that 2003 marked a turning point in investors' perceptions of directly held property as an asset class, property economists Rode & Associates said in a report.

Garth Johnson, the report's editor, said the continued rerating of non-residential property had led to an increase in market values as capitalisation rates decreased.

Capitalisation rates - the non-listed property sector's equivalent of the forward earnings yield of shares - decline when prices rise, holding market rentals constant.

Given the good fortune of retailers, it was not surprising that shopping centre capitalisation rates were the first to drop.

However, the big surprise on the office front came from central business districts, the capitalisation rates of which fell sharply.

Rode expected office rentals to bottom out soon, as above-normal vacancy rates were being eroded with a growing economy.

Real industrial rentals rose again, a significant turnaround because real industrial market values had been on a secular decline for over two decades, said Johnson.