Friday, 18 October 2019 09:24

Residential building statistics

Continued evidence of some diverging trends at segment level in the planning and construction phases of residential building activity.

Strong growth in residential building activity on a segment level .

Residential building activity levels down in early 2015 from a year ago.

The Green Building Council of South Africa (GBCSA) has launched the PILOT Energy and Water Benchmarking tool for the commercial property industry, which allows property owners to see how their building’s consumption measures up to industry norms

Building costs and prices as per tenders for buildings to commence in January 2013 have now plummeted another 15% below what quantity surveyors estimated they would be, indicating that there are no real signs of a fast turnaround in fortunes for the stakeholders in the building-construction industry

“A large number of construction companies remain in dire straits and many are tendering for projects at cost price just to keep machines and salary costs running – or covered – until the market picks up. But there is unlikely to be any major move upwards in the near future,” said Org Geldenhuys, managing director of property development and marketing company, Abacus DIVISIONS. Geldenhuys.

He said while growth in the building-construction industry remain muted, “now is the time to seize the opportunity to build - and reap the benefits of lower pricing”.

Geldenhuys said there are only four stands left for sale in the R2 billion office park development in Irene – Route 21 Corporate Park. Abacus DIVISIONS is one of the key companies marketing the office park – and has been doing so for the past 10 years, accumulating an property investment portfolio in the office park now valued at more than R80 million.

“We expect prices on stands to go up as stock is diminishing – and re-sales will be minimal as we have had no speculators buying stands in this area for some time now. Most were owner occupiers or investors wanting to develop.”

Despite favourably low interest rates, business confidence is taking a knock. A diminished sentiment among business decision makers possibly points to companies cutting back on additions to fixed capital. “If one considers that private enterprise makes up as much as 60% of fixed capital formation, which, in turn, makes up 20% of the total expenditure on gross domestic product (GDP), then any prolonged weakness in business sentiment among business decision makers is not a good overall sign for the South African economy.

“In fact,” said Geldenhuys, “with South Africa’s economic growth seemingly coming under threat, there is a good chance that the Monetary Policy Committee will drop the interest rate when next it meets.”

Tuesday, 07 February 2012 02:00

Building costs makes developing attractive

But watch out exactly who you partner with... and check out achievable rentals

Tuesday, 04 September 2007 02:00

What has happened to building costs?

The FNB CPF Commercial Property Building Cost Index, constructed by Industry insight, has seen slowing growth over the past 18 months, but this slowdown is expected to be a temporary reprieve for the construction industry.

Construction IndustryGood old scarcity is accounting for much of the pricing pressure which developers are encountering. Demand for commercial space is outstripping supply and developers are hard pressed to bring new projects on stream.

 “What we have noticed,” states Neno Haasbroek, CEO of Sycom Property Fund, “is that there has been some improvement in the pricing on smaller jobs – those in the R20m region – but for the larger projects – the R500m or R1bn developments – it is hard to find competitive pricing.” The large construction companies have their hands full with the infrastructure projects under way in South Africa and this is likely to continue over the coming years.

Some impact from the higher interest rates is filtering through, but the underlying trend of too little supply to satisfy the growing demand means that costs are expected to see building inflation turning up again.

Although the cost of materials is rising – cement, for example, is currently being imported –contractors and service providers are raising their rates at well above inflation levels. With significant expenditure on infrastructure (such as the World Cup Stadiums, Gautrain and the Coega industrial development zone) competing with commercial developers for resources, there is likely to be renewed pressure on building costs in the years ahead.

Pity the developer outside the main metropolitan areas. If there is a large project, which cannot be handled by local contractors, they will be pushed to find anyone to deal with the development. “Even if they can get a contractor,” notes Haasbroek, “the quotes are likely to be rather uncompetitive.”

For an investor in PUTs, this represents encouraging news. “With costs escalating at present rates,” says Craig Hallowes, spokesperson for the Association of Property Unit Trusts (APUT), “rentals for existing properties will be rising as they come up for renewal.”

Haasbroek gives an example: “We can’t bring a new office block on line in Sandton for under R120/m2 at present. Although I don’t think that we are yet at the point where rentals will be running at replacement cost, if the rent is currently R70/m2 or R80/m2, then I think that you can expect a 20% rise when renegotiation takes place. This is more of an issue than it has ever been before.”

In the past, the lead time to bring an office block on stream was about 12 months, while land was readily available and rezoning took place rapidly. This meant that supply could respond to increases in demand relatively rapidly. Now, however, councils have tightened up markedly on rezoning. Add to that building cost inflation and it is easy to see that supply is no longer as flexible as it was historically.

In the case of retail developments, a higher number of subcontractors are used for specialist items such as glass and aluminium. This is placing additional strain on retail developments as the specialists are notably scarce at the moment.

 

Wednesday, 01 February 2006 02:00

Building costs threaten development

BUILDING costs are rising faster than recent figures suggest, and threaten to slow the pace of further development, First National Bank economist John Loos said yesterday.

Wednesday, 23 November 2005 02:00

Soaring building costs slow down developers

SOARING building costs will probably prevent an oversupply of new office developments, and in turn create a positive office rental market in the short to medium term.

Tuesday, 16 August 2005 02:00

Rising building costs

Rising costs putting pressure on rentals and prices in new commercial and industrial developments.

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