Nick Wilson

Property Correspondent

SPEARHEAD Property Holdings, one of the top listed property loan stock companies on the JSE, says that Cape Town office space is the cheapest in the world.

It also says it is less expensive than other underdeveloped African countries, such as Kenya, Tanzania and Zimbabwe.

Spearhead CEO Mike Flax recently told the US international television network CNBC that in Cape Town people were paying only 10% of what was being charged for rental space of equivalent quality in London and only 15% of what New Yorkers were paying for offices of the same standard in Manhattan.

He said it was not surprising that UK and European property investors and property fund managers had been in SA in increasing numbers recently.

"They recognise, as we do, that rentals can only improve dramatically from here onwards," he said.

Flax said one reason for low rentals in Cape Town was that a large oversupply of office space in the 1990s and a weak economy had made "it impossible to maintain satisfactory rentals".

There had also been little new office development since then, with conversions of central business district offices into residential complexes creating a shortage of space.

CNBC was in SA recently to cover the African Economic Summit in Cape Town.

Flax said he had "no doubt" that listed property companies and funds on the JSE would start increasing their exposure to offices and industrial properties, which are expected to perform strongly in the future.

"This will move the weighting away from retail," he said.

Flax said about 30% of Cape Town-based Spearhead’s property portfolio consisted of offices but that this was likely to increase to about 45% in the next two years.

He said the fund managers of international unit trusts were being forced to include SA in their "investment universe" because of the country’s important weighting as an emerging market.

Flax said these fund managers were "looking at listed property shares in SA" and did not have the time or operations on the ground to buy physical property.