This week inland commercial property supply is assessed, focusing on Gauteng and The Free State. Planned supply YTD over 2001-2004 in Gauteng has been incredibly consistent averaging just shy of 600 000m². This year 1 million m² of commercial plans have been passed with a dramatic increase in both office and retail allocations. However this level of activity has not yet transpired into actual supply on the ground.

Nearly 60% of commercial planning takes place in Central Wits. Interestingly YTD data shows that both retail and industrial completions are up on last year, but offices are quite significantly down, which must bode well in terms of ensuring that the market recovery continues. By comparison, Pretoria is ahead of the Johannesburg property cycle as reflected in growth in office completions and a drop in industrial completions. Clearly the
relatively high level of completions in 2004 came from accumulated years of planning activity and judging from the level of planning activity in 2005, this pattern may be repeated going forward.

The share of Pretoria office planning activity has been rising in relation to Gauteng, whereas retail and industrial completions have dramatically increased in proportion – from well under 10% in 2001 to around 40% in 2004, though again now lower in 2005.

The Free State market has seen some 65 000m² of retail planning activity thus far in 2005. More than 50% of industrial planning is occurring outside of Bloemfontein and to date completions have been almost exclusively outside the city. Most retail completions to date have also been outside of Bloemfontein; but most retail and
office planning activity is taking place within the city.

The North West is seeing record growth in the level of completions compared with the previous five years; due by and large to the meteoric rise of Rustenburg.

In conclusion, from the YTD planned national supply perspective, some 52% increase is taking place (66% for both office and retail and 38% for industrial). In terms of actual completions though the growth nationally is 6% (21% & 23% for retail and industrial respectively, with 19% less supply experienced for office space). The last time that we had more than 500 000m² of potential office space in the pipeline was in 2001. Record levels of retail and industrial supply are also recorded. What with massive infrastructure spending on the cards, in general one can expect that building cost inflation will not subside, thereby impacting on project feasibilities. One cannot realistically expect too much retail rental growth, so decisions to bring new centres to market will primarily be driven by demand factors, first-entry principle and niche opportunities. For industrial projects, required rentals are plausible and thus we can expect to see some significant projects and redevelopments coming on stream over the next year or two. The office market will remain the most difficult to call and clearly projects will need to be assessed on their merits with due cognisance of micro trends. If vacancies continue to improve, then the market may well begin to test rental levels above R100/m² as required to bring projects to fruition. Clearly if SA achieves GDP growth of around 5-6% within the next two years, then conditions should support building activity as reflected by the planning numbers. The biggest risk facing SA is now political in nature.

Marc Schneider
Research
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