Overall Economic Snapshot in South Africa 2019
For the bulk of the SA listed property space – the local entities – the SA economy needs to show growth activity so these entities can grow their earnings by pushing up rental income. Currently South Arica has a severely ailing economy with a reported retraction of the economy in the first quarter, of 3.2%. This is terribly concerning. Despite this first quarter shock we do need to shelve our instinctual fears and allow the next 3 quarters to unfold (a lot can change in this time) in order to paint a more reliable picture. This will show the potential of the commercial property market to show growth and better movement in the leasing space.
At the moment most REITS are reporting negative reversion rates on re-signed leases in the last 6 months, averaging around -6%. This tells us that in order to keep tenants in buildings REITS are willing to lower their rental prices. This shows a serious lack of demand for the significant oversupply of commercial office space.
Despite high vacancy rates and a hesitant corporate rental market the appetite to buy commercial property is relatively high. This is especially the case with owner occupiers and with smaller investment consortiums.
Industrial property investment
The industrial property market is the top performing sector in the commercial property market. This has been the case for some time. The growing logistics market is one of the key reasons why this sector is out performing the rest. There are many hi-tech operations requiring industrial hubs in South Africa for continental and global distribution centres. This is strongly driven through buying properties rather than leasing them.
Distribution centres and high-tech warehouses, which are classified as prime logistics assets, are among the most sought-after property assets in SA. Companies are wanting to benefit from future growth in online shopping and also to sign up global companies who want to establish supply chains here.
With our national elections successfully concluded there is a predominant view that investment will begin to steadily increase and grow throughout 2019. This will happen gradually and with caution. South Africa will need to need to see a marked increase in economic growth which will bolster investor confidence. However many longer term bullish investors are still showing significant appetite for investment.
Land Expropriation without compensation
This is an issue of grave concern for many potential investors. While it does impact on the negative sentiment of the investment community, both locally and abroad, this concern is overstated. Those who truly understand this issue are not as nervous. Most expropriation claims do not come close to affecting urban commercial property areas. In some ways it is an unreasonable concern for commercial property investors.
The opportunity for buyers, lessors and landlords
If you understand the longer term gain of property investments, and you have deep pockets, now is the time to make some very good value purchases as an owner / occupier. Now is the time to get good value.
Now is also potentially a good time to invest in REITS. That is if you are able to separate the wood from the trees and see the potential in the longer term. Africa will continue to attract the largest investment capital globally and locally in decades to come. Africa is the greatest economic opportunity going forward and it represents the greatest influx of new markets and growth when compared to other markets.
Lessors and Landlords
Right now people need value and flexibility when renting. This mean spending much more time aligning your buildings to specific client needs. This means ensuring you are able to offer value and savings in the form of lower escalations, better and more equipped facilities, and more flexible leasing terms. Shared office setups with mixed use facilities are also a better way of securing your rental potential over time.
This is a brief snapshot of the commercial property space right now, along with some useful resources to support and substantiate these views. Shiny Rock will continue to provide you with snapshot information with supporting media and institutional resources as the year progresses.