Nick Wilson
6 August 2008
Johannesburg — THE South African commercial property sector is again expected to be the top performer this year in terms of total returns in local currency, says David Green, MD of Pace Property Group.
Green says there has been no material change in vacancy rates and rentals in SA's commercial property sector, so it is likely SA will retain the top position.
He says that according to the Investment Property Databank Global Index, South African commercial property outperformed the global real estate benchmark last year, showing a total return in local currency of more than 27%, with South Korea at 26% and New Zealand at 22%.
The UK delivered negative total returns of about -3,5% last year. Green believes the UK's weakening trend will continue this year.
Johannesburg-based developer Chris Renecle, MD of Renprop, says there is still "demand for rental accommodation", especially in industrial property and offices. "But what happens this year will depend on what happens to the rest of the economy."
Factors like power supply will come into play, and the electricity supply crisis is slowing development. "Because of the lack of power supply, the supply of new developments has not been massive and this has prevented an oversupply from happening."
Property economist Erwin Rode, of Rode & Associates, says SA's commercial property market is "doing relatively well" as the fundamentals are still in an "upswing phase". Rode says South African property's capitalisation rates have not risen as much as overseas because local banks have been more cautious over many years when it comes to lending.
"Overseas banks were less cautious, mainly the US and British banks, so their loan values were much higher than ours. Because of the subprime crisis many of these investors now have to sell to create more equity in their investments. This has put the squeeze on capitalisation rates overseas," he says.
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