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Major players upbeat about prospects for investment

Posted On Tuesday, 18 June 2002 10:01 Published by
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Oversupply of space likely to even out naturally
DESPITE the volatility of the rand and interest rate hikes in the first quarter of the year, property market conditions are stabilising, reestablishing the platform for continuing interest in property as an asset class for the rest of 2002.

This is the positive picture emerging from some of the major property players.

The JHI Real Estate South African Property Report for 2002 says the market is still characterised by oversupply, despite positive market conditions.

But Les Weil, executive chairman of the company, believes that the oversupply of property, particularly office space, is an inevitable part of the property cycle and will even out as a natural consequence of supply and demand.

'The take-up is likely to take place in the medium term, which is longer than the market is accustomed to, but I do not believe the situation is as dramatic as some foresee,' he says.

Building supply trends indicating that planning activity has shown a downward trend since the beginning of 2001, support this view.

From January to October last year the value of non-residential plans passed was R3,05bn, a 22% decrease compared with the same period in 2000.

The only province to buck the trend was KwaZulu-Natal, where the total value of just over R500m represented a 54% increase on the previous year, due to substantial development in the north of the province in the Umhlanga and La Lucia Ridge nodes, as well as casino development, according to the report.

In terms of sectoral investment activity, offices have seen an average annual growth rate of about 32% through 2001, compared with 2000.

For the same period, retail grew by 4% while industrial activity growth was negative at 8%, the report says.

Russell Inggs, head: Nedbank property finance, says volatility in the macroeconomic environment is expected to influence the property sector this year at the same time as investors and developers are seeking new opportunities in diversified sectors.

He says the year started on a cautious note with the events of September 11 and the US war on Afghanistan to some extent setting the tone globally.

Expectations of a world economic slowdown and its implications for southern Africa have remained uppermost in the minds of property investors, says Inggs. Factors such as the situation in Zimbabwe, escalating conflict in the Middle East, the significant depreciation of the rand and the resultant threat to both inflation and interest rates, are expected to play a role in the outlook for the rest of the year.

'However, a movement towards public sector projects and a keener focus on risk assessment have seen a shifting dynamic over the past year.'

He says property investors can look forward to interesting new opportunities.

'Across SA cities, 2002 began with the recognition that traditional prime office and retail nodes may face the threat of oversupply. As a result, developers and investors are actively seeking new property opportunities in, for instance, the residential property sector or in smaller towns.

'Given that the relocation of space-users from the Johannesburg CBD has all but ended, focus has shifted to the identification of new demand, new businesses and new potential tenants.'

He says a similar trend is likely in other metropolitan centres.

Prime industrial nodes, especially around industrial development zones, premier office nodes and decentralised nodes in smaller cities and towns, and retail properties underpinned by strong tenants on long leases, are expected to be the focus of investors for this year.

As is the case with most economic indicators, the property cycle is characterised by peaks and troughs. While activity in certain nodes and sectors may be slowing, there are growth prospects in other areas.

Inggs says activity in the prime industrial nodes is expected to be steady during the coming year, with development in industrial estates such as Linbro Park and Longmeadow Estate.

The Route 24/Meadowdale node is expected to see continuing demand, as are industrial developments in Centurion, such as the Highveld Techno Park.

Office market activity is likely to stay fixed on the prime nodes, especially those in northern Johannesburg and Pretoria East. There are expectations that the decentralised office market in smaller cities will see some growth in 2002. Examples include Westdene in Bloemfontein, Newton Park in East London and Greenacres in Port Elizabeth.

The forecast for the retail sector is that the focus of developments will be driven by the major nationals, where long leases are in place.

Business Day

Publisher: Business Day
Source: Business Day
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