THE 50 basis-point hike in interest rates by the South African Reserve Bank on Thursday is not expected to hurt the South African commercial property market, which includes retail, office and industrial property.

Property pundits say the market was expecting the hike and that it had been priced in. But future hikes may have a detrimental effect on prices.

David Green, MD of office and industrial property brokers Pace Property Group, said on Friday that a rise in interest rates generally affected the value of real estate negatively.

“And we would anticipate that initial yields on which properties are valued would rise, which implies that property values decline. To some extent the increase in interest rates was anticipated and therefore the property values are currently indicative of interest rate increases, so we don’t anticipate that the last interest rate will negatively affect property prices,” said Green.

But he said further interest rate increases might well have a negative effect on property.

Green said investors in commercial property would now be wanting to acquire properties at slightly higher yields than they had applied over the past 18 months as they priced in risk of potential future interest rate increases.

Barry Stuhler, MD of listed property unit trust Capital Property Fund, said there would have to be a “fundamental increase upwards” in interest rates in order for commercial property pricing to be affected.

Stuhler said he did not “see any effect on values from this interest rate hike”.

Andrew Bradford, director of commercial property consultancy Bradford McCormack, said while the commercial property industry was obviously affected by rising interest rates, the property fundamentals of supply and demand were still having a “far greater influence on rental rates for office and industrial properties”.

“For new developments, rising building costs, shortage of building materials, increased contractors’ margins and now higher interest rates are manifesting in pioneer rental rates. As developers hesitate on these new marginal projects, so existing stock is placed under increasing pressure from tenants, resulting in rentals rising to unprecedented levels,” said Bradford.