Spearhead Property Holdings, the JSE Stock Exchange listed loan stock company, currently has over R500 million worth of new projects on the drawing boards and will “in the very near future” make acquisitions with a value of over R200 million.
This was revealed recently by Ilan Kaplan, Spearhead’s respected analyst.
“Our reading of the current situation,” said Kaplan, “is that interest rates in the next year are unlikely to move much more than 50 base points either way. This is now the general perception in the market and it has created considerable confidence.”
The renewed confidence in commercial, retail and industrial property as an investment, said Kaplan, has been evident for some three years now.
“Prior to that,” he said, “most investors were demanding a large risk premium - which they were often able to get in a risk band of up to 6%. Recently, however, the high yielding properties have become harder to find and investors have come to accept lower risk premiums because the perception of the risk associated with commercial property has decreased.”
Since early 2000, said Kaplan, the highest rental growth levels had been seen in retail properties. As a result, retail rentals are now nearing the point where, after a long period of being undervalued, they are becoming fairly priced.
“Retail property,” said Kaplan, “has always had a glamour image and for this reason has been able to attract corporate and big company investment and has been “a catalyst” in driving the renewed investment in commercial property.”
By contrast, office and industrial space, said Kaplan, have traditionally been less attractive to investors - but in these sectors he is now particularly bullish.
“As we all know, some 30% of the CBD stock has come off the market as a result of conversions to residential. Driven by improved economic fundamentals however there has been increased commercial investment resulting in increased demand and take up of office space. New stock, developed to meet this demand will only come on stream in 12 to 18 months and there is, therefore, good justification for investing in existing stock. We anticipate a scenario in which vacancies in the city could reduce to below 5% and rentals in ‘A’ grade buildings begin regularly to break through the R100 per m2 barrier.
“Spearhead will make the most of the situation by bringing a further 30,000 m2 of office developments on stream in Gardens, The Foreshore and Century City and we are now also almost certain to go ahead with sectional title office developments in Wynberg and Montague Gardens.”
The Cape industrial sector, said Kaplan, still shows the biggest disparity between current rentals and the minimum rentals required by feasibilities on new projects.
“In the less expensive areas on older buildings it is possible to get rentals as low as R14 per m2. New stock cannot be charged out at less than R35 to R40 per m2.
“Here there is clearly huge under pricing, and therefore good investment opportunity and we have seen “fair” (in terms of building costs) rentals in clean, well designed new projects become increasingly acceptable - witness the fast sales at Spearhead’s Montague Gardens Business Park. The industrial sector, therefore, has room for further well planned development.”
Kaplan stressed that Spearhead’s success has rested as much on its ability to administer and find new tenants for its properties as on its skill in buying good quality stock and developing what the market needs. Spearhead, he believes, has been among the front runners in identifying market opportunities, in the process adding valuable trading profits to the bottom line.
“Although we rely heavily on brokers we do not outsource our management and our leasing team is very active. Throughout Spearhead the motivation to succeed is fuelled by the management’s large stakeholding in the company. Our team is not distracted by extraneous or competing interests.”
