Office rentals to grow: Vukile

Posted On Tuesday, 26 June 2007 02:00 Published by eProp Commercial Property News
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Vukile states that economic growth could mean double-digit growth in rentals in SA's office sector

Gerhard van ZylSustained economic growth could result in double-digit rental increases in the office sector of South Africa's property market, Vukile Property Fund said in its 2007 annual report.

The report said that the underlying fundamentals of the commercial property market remain strong, with vacancy levels expected to decrease again this year, prompting further rental increases. Vukile Property Fund also expects capitalisation rates to continue to strengthen.

"The viability of new projects is, however, being impacted by the rise in building costs, while in the industrial sector the lack of suitable land is also limiting the potential for new developments. It is estimated that A-grade building costs now require net rentals on new office buildings to exceed R100/m², well above the average current levels," Vukile Property Fund's Chairman Anton Botha and Chief Executive Gerhard van Zyl said.

Significant infrastructural expenditure on such developments as the World Cup, the Gautrain and the Coega IDZ would place further pressure on building costs in the year ahead, they said.

Noting that the past year's consolidation in the listed property sector was expected to continue, the report described that as a positive trend for the industry and its investors.

"Fewer but larger entities will improve liquidity and increase the market capitalisation of stocks in this sector. A reduction in the number of property companies will also see a commensurate increase in the number of premium, high-yield assets in their prospective portfolios," Botha and van Zyl said.

With a portfolio capable of generating good long-term yields, BEE credentials and a prudent debt structure, Vukile Property Fund said it was well placed to take full advantage of the favourable trading conditions in its market.

It added that it would continue with its strategy of seeking new investment opportunities at acceptable yields while at the same time revamping or enlarging existing properties where appropriate.

A further priority would be to investigate and implement cost-saving measures in the portfolio, the company said.

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