Improved economic outlook boosts belief in property

Office, Retail, Industrial, Hotels and Residential

Posted On Thursday, 15 May 2003 02:00 Published by eProperty News

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Strong take-up of industrial space in most regions, writes David Jackson AN IMPROVED economic outlook for SA on the back of the rand's robust recovery has boosted the commercial and industrial property sectors, offsetting to some degree continuing concern over high office vacancy rates.

The stronger rand has had a tremendous impact on confidence in the
commercial property market, with a strong take-up of industrial space also
being reported from most regions.
"There is activity across the board, with nodal shopping centres and office
parks probably generating the most interest right now," says Rodney Luntz,
of property consultancy Abro Luntz.
"Confidence in the market is running high. It's amazing what a stronger rand
does for sentiment.
"Property is producing better returns than equities at present and most
investors are factoring a drop in interest rates into their plans, which
would allow for more effective gearing of deals, while rising building costs
virtually guarantee good capital gains."
While there is still an overhang of space, Luntz believes that this will be
steadily eroded, notably at the top end of the market, provided landlords
keep their lease conditions reasonable.
"Notwithstanding this overhang, there is strong demand in specific market
niches, mostly for the medium to small-sized decentralised development as
opposed to the megaprojects of the 1970s and 1980s, which were mainly
institutionally backed.
"Interestingly, institutions are slowly coming back into the market but most
of the impetus is coming from private investors and developers, spurred by a
robust listed property sector that is seemingly sorting out its problems."
Luntz says the grey money moratorium announced in the budget should
encourage a return flow of capital to SA, particularly if the rand started
to weaken again. Some of those funds should find their way into commercial
property or property loan stock, which currently offers better, safer
returns than the stock market.
In addition, Luntz says property continues to stand out as a safe haven for
investment in an environment of extremely volatile equity markets, while the
R13bn worth of tax concessions in the budget could stimulate retail
turnovers "which is good for both landlord and tenant".
Meanwhile, property analysts report a surge in demand for investment
properties in the Cape in the first few months of this year, particularly
for industrial properties.
Nicholas Piper, regional manager (Western Cape) of property asset managers
Spire Property Services, says there has been a lack of development of new
industrial premises over the past four to five years that has resulted in a
shortage of suitable stock, particularly of larger industrial and
manufacturing sites.
Piper says that in the past the strength of Cape manufacturing largely
depended on the performance of the food processing sector as well as
clothing and textile industries.
"The Western Cape economy is, however, broadening its base. Companies
focusing on information technology (IT), telecommunications, medical and
research equipment and other hi-tech processes are starting to establish
themselves in this region."
The appeal of the Western Cape's commercial property is supported by
landlords throughout the Cape who are proactive in dealing with crime, he
says.
Piper says Montague Gardens, about 15km from the city centre, remains one of
the more popular commercial areas and is seen as Cape Town's premier
industrial area.
Average rentals range between R18m² to R27m².
Paarden Eiland, close to the city centre, is one of the Western Cape's
oldest commercial nodes.
Average rentals range between R14m² to R18m², with current vacancy levels
around 6%.
Piper says development activity in this area is on the increase and a number
of properties are being redeveloped in order to benefit from Paarden
Eiland's expected growth.
The airport Industria area is once again in demand following security
initiatives undertaken by landlords that have improved overall safety in the
area.
Average rentals range between R16m² to R20m², with those properties along
the airport and close to the major access routes demanding a slightly higher
rental.
Vacancy levels are now between 5% to 10% and very little stock is available
in the 2000m² and larger range.
Also experiencing renewed interest are the older, more established
industrial areas of Epping and Ndabeni, northwest of the city.
Publisher: Business Day
Source: Business Day

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