While a gloomy outlook has been painted for the economy by many, the office and industrial property letting markets seem to indicate all is still relatively well.

Listed property fund Emira says it is “finding the commercial and industrial letting market quite robust, notwithstanding the cooling in the economy”.

It says that in the past three months it has concluded several sizeable commercial and industrial letting deals in its portfolio at “extremely favourable rentals”.

For example, it recently let 1240m² to a well-known company in Hurlingham Office Park in Johannesburg at a gross rental of R105/m²

It also let a total of 1200m² in its Epsom Downs Office Park in Bryanston at about the same rental level.

“As little as three years ago, rentals at some of these office parks were in the range of R50/m² to R60/m² gross,” says Emira.

Emira CEO James Templeton says the industrial letting market is “vibrant” with the fund recently concluding several leases at favourable rentals.

Eris Property Group, formerly RMB Properties, says its experiences support Emira’s view — Eris concluded leasing and property investment broking deals to the value of R480m in the past year.

Property economist Erwin Rode, of Rode & Associates, says his company’s statistics show there has not been a slowdown in office and industrial property.

“One reads about the coming recession in the newspapers, but the property statistics don’t show anything approaching a recession,” says Rode.

He says offices will perform better this year than industrial property.

Industrial property “picked up momentum” earlier than offices and there are some early indications that the factors that drive this market are “abating”.

“We saw Investec’s purchasing managers index at the weekend was lower and as for space for distribution, we all know the retail sector is battling. These factors make one think industrial property will slow down towards the end of the year,” says Rode.

Francois Viruly, property economist at Viruly Consulting, says vacancy rates in the office market remain at 10-year lows.

“Under present conditions, I believe that rentals should continue to rise at at least the rate of inflation,” says Viruly.

But he says developers are aware of this and the market might be “running a risk that in certain nodes the market is starting to touch equilibrium levels in that supply and demand are almost running abreast”.

“I am still taking the view that going from now until 2010, we will find ourselves in a market that will remain tight. There will be very little space and we are seeing certain nodes with vacancies below the 5% level.

“The only problem is that as the economy slows down, rentals at the higher end of the market could come under some pressure and I think the sector of the market that will do particularly well is probably the middle end of the market.”

He says even if development activity in the office market starts rising, vacancies will remain in most nodes below the 10% level going into 2010.

Viruly says he holds a similar view of the industrial property market. “There are probably interesting prospects to upgrade middle and lower-end industrial properties. If we see a slowdown in manufacturing output in the economy, it is probably the higher end of the market that could come under pressure.

“The industrial market in general remains under major infrastructural constraints, particularly around land availability,” he says.

Source: Business Day