‘Handsome reward’ for modest price

Posted On Friday, 18 July 2008 02:00 Published by
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Business conditions are creating the need for the auctioning of commercial and industrial property that has infrastructure and services already in place.

BUSINESS conditions are creating the need for the auctioning of commercial and industrial property that has infrastructure and services already in place.

“Auction properties realised surprisingly modest prices at recent sales but there is opportunity for investors prepared to take a medium term view,” says Lawrence Wulfsohn of Park Village.

“It’s apparent that prices paid now will be handsomely rewarded down the line.

“Decentralised regions of Johannesburg are showing continued robust rental growth,” Wulfsohn says.

“In the climate of fewer new developments, we expect demand for existing office space to increase, suggesting that rentals still have considerable potential for further growth.”

Rode and Associates says growth in replacement costs building costs plus the cost of land has outpaced market rental growth. By implication, therefore, this has discouraged new developments.

“In the face of negative vacancy rates, rental levels are accelerating and no doubt this will attract new office development,” Wulfsohn says.

However, building costs continue to increase at about 15% a year on an input/profit-margin basis, according to the Bureau of Economic Research at Stellenbosch, and there will therefore be a lead time before new developments start arriving on the market on a large scale.

“The net result has to be increased demand for existing office-space auction stock, accompanied by rising rental returns and increasing market values,” Wulfsohn says.

“As for industrial property, Eskom’s moratorium on electricity certificates for new developments is likely to support rentals in the medium term,” Wulfsohn said.

“Industrial rentals in the central Witwatersrand increased 30% in the fourth quarter of last year, so there are excellent returns to be had from investing in industrial space auction stock .”

The next Park Village sale will take place on August 27.

Source: Business Day

Publisher: I-Net Bridge
Source: I-Net Bridge

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