Property experts are expecting 2006 to be another good year for the South African listed property sector with continued strong earnings growth being a prominent feature.

But capital appreciation in the listed-property sector is not expected to be a factor in the future.

For the past three years the listed property sector has shown strong capital appreciation.

Mariette Warner, head of property funds at Stanlib Asset Management, says she expects earnings growth from the listed-property sector to continue to be strong.

"But there will not be much in the way of capital appreciation because we are at the bottom of the interest rate cycle," says Warner.

She expects the industrial property market to be the strongest property sector next year.

But Warner hastens to add that this will not be the case across the board for industrial property sector.

She says the listed-property sector has "very little exposure" to the strong industrial property market.

Warner says some of the listed property funds are still suffering from "long leases expiring at higher than market rentals".

"It is the industrial property portfolios with short leases that are generating the strong earnings growth," says Warner, who also expects offices to start "performing during the course of the next year and in 2007".

Catalyst Fund Managers, which compiles monthly reports on the listed-property sector, says its general view is that the opportunity for the listed-property sector in the next year is still going to be driven by strong and improving property fundamentals together with savings on debt-funding costs.

"Our view is that the ability of certain property funds to unlock debt saving costs will contribute to savings growth," says the group.

On a sector basis, Catalyst says retail property is still performing well, and it is still expected to be fairly robust for the next 12 months.

But the group says industrial property is "already seeing significant rental growth coming through".

Catalyst says this can be seen in particular in the case of industrial-focused, listed-property loan stock company Metboard Properties, which showed distribution growth of 7% when the group announced interim results recently.

Catalyst says Metboard had originally warned of "potential rental reversions", but that this had not materialised.

The group says that, based on the latest data from commercial property association Sapoa, office vacancies continue to decrease in certain nodes such as Claremont and Century City in Cape Town.

Catalyst says that Sandton has also seen a small reduction in vacancies, and that as a result there was rental growth.

Garth Johnson of property economists and valuers Rode & Associates says the industrial property market is already in a boom.

"Pretty soon the office-property market is going to be joining the party," says Johnson.

Business Day
 
Publisher: I-Net Bridge
Source: I-Net Bridge