- Despite the fundamentals generally appearing solid for commercial property,slowing economic growth this year and rising interest rates could cause a slight further slowdown in returns this year. Growth is expected to begin to turn for the better in 2008, while interest rates are expected to move sideways for a lengthy period after one more 50 basis point hike later this year.
- It is believed that the retail property sector leads the cycle, and that it is in line for further slowdown in 2007 and 2008. Nevertheless, there would not appear to be a gross oversupply of retail space nationally, suggesting that it is unlikely that retail returns will dip sharply.
- New township retail developments will continue to be a buzzword for the
foreseeable future. Townships, having been under-serviced dormitory towns in character, offer a great opportunity for strong retail property returns. - Industrial sector returns, leading the pack at above 30% in 2006, could keep their nose ahead in 2007, although further near term slowing is anticipated on the back of signs that the manufacturing sector is slowing.
- By 2008, it is believed that the office sector will take over as the strongest performer, showing an acceleration in returns. Office vacancies continue to decline, and are at very low levels.
Traffic congestion and high rates of new vehicle sales are is expected to play an increasing role in decisions surrounding location of office space. While smaller more far-removed nodes are still expected to growth in size and offer good returns, prime decentralised nodes such as Sandton (and Claremont and La Lucia Ridge in the Cape Town and Durban cases) may still keep their noses ahead due to deteriorating traffic congestion driving the desire for corporates to be “closer to the main action” - CBD rejuvenation is expected to continue, but in the case of Joburg the CBD is expected to become the place with a large proportion of “lower level” non-clientfacing (back office/admin) office activity as well as middle-to-lower end residential living.
Publisher: FNB Commercial Property Finance
Source: FNB Commercial Property Finance
