SA prop report 2002

Posted On Monday, 01 April 2002 02:00 Published by eProp Commercial Property News
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Not with standing the fluctuations in the rand and the interest rate hikes in the first quarter of the year, conditions are increasingly stable re-establishing the platform for ongoing interest in property as an asset class in 2002.


This is the positive picture emerging from the newly released JHI Real Estate South African Property Report for 2002.

However, the market is summed up, in general, as being characterised by a scenario of over-supply despite positive market conditions.

Les Weil, executive chairman of JHI Real Estate, believes, none-the-less, that the over-supply of property, and particularly office space, is an inevitable part of the property cycle and will even out as a natural consequence of supply and demand.

'The take-up is likely to take place in the medium term, which is longer than the market is accustomed to, but I do not believe the situation is as dramatic as some foresee'.

This view is supported in the report by building supply trends, which indicates that planning activity shows a clear downward trend since the beginning of 2001. In the period from January to October 2001, the value of non-residential plans passed was R3.05 billion, which was a 22% decrease compared to the same period in 2000.

The only province to buck the trend of declining planning activity over the same period, was KwaZulu Natal, where the total value of just over R500 million represented a 54% increase on the previous year. This is due to the ongoing substantial development in the northern nodes of the province in the Umhlanga and La Lucia Ridge nodes, as well casino developments'.

In terms of sectoral new investment activity, offices have seen an average annual growth rate of some 32% through 2001 compared with 2000; for the same period, retail grew by 4% whilst industrial activity growth was negative at –8%.

Property investment activity continues to be boosted via the broad concept of property securitisation and listing.

Weil points out that the liquidity offered by listed property funds will continue to ensure that this sector enjoys a distinct advantage over direct property holdings. 'With timing a crucial factor in the commercial property market, the ability to better balance risk, enter and exit different markets and nodes at different points in the cycle, as well as respond flexibly to market dynamics, is becoming increasingly important', he adds.

Provided that interest rates do not move out to unacceptable levels, Weil believes that the only other constraining factor for the sector is a limited supply of quality stock.

The report provides a value benchmark yield for the sector of an average of 13%, given upward pressure on inflation, an upward forecast of the long bond rate to 11.01% for 2002, and including a risk premium of 2%.

Both locally and abroad, debate has arisen regarding the merits of a mixed portfolio approach – incorporating sector and geographical spread – versus a focussed sector approach.

There is also a trend amongst certain funds to downplay location as a prime criterion in favour of high yields derivable from sound tenants likely to renew their leases.

'No doubt 2002 will provide opportunities and challenges in investment activity', comments Weil. CBD offices, for example, could selectively prove to be strategic investments when considering their propensity for locating the small business sector – one that continues to be favourably regarded from a tax incentive perspective.

Last modified on Thursday, 22 May 2014 16:53

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