Noticeable changes in SA commercial property sector
Cape Town - There have been noticeable changes in the commercial property sector with even greater emphasis on secure tenants and easily let, well-positioned properties, according to Norman Raad, CEO of Broll Auctions and Sales.
He said the industrial sector has shown definite signs of growth with limited availability of good quality logistical warehouses and smaller mini-unit warehouses.
In the office market, space is generally over-supplied, although the gap between new office rentals and existing commercial space is ultimately expected to narrow.
Although retail sales growth has moderated to some degree, private investors continue to demonstrate a steady appetite for commercial property acquisitions in this sector of the market.
“With 2.4% year-on-year growth in May, retail sales growth has still outperformed for the current year to date when compared to the same trading period in 2014," said Raad.
"While retail has begun showing signs of saturation with some shopping centres ‘stealing’ from neighbourhood malls to offer something cheaper and more attractive in this very tight and consumer driven market, astute investors are capitalising on opportunities in decentralised nodes in regions around the country."
Raad said the uptake of a diverse range of retail, industrial and office properties at national, multiple auctions held by Broll Auctions and Sales so far during 2015 reflects sustained confidence in commercial property by both the listed property sector and private property investment market.
“Buyers are enjoying the current cycle of opportunities, with experienced investors buying high yielding assets as the commercial market and investors reinvent themselves - on a playing field with different rules," said Raad.
“It is interesting to separate the listed property sector from the private property investment market, as they have different investment limitations in terms of acquisitions and growth."
He said right now the funds are aggressively looking outside the borders for sound investments, as well as acquiring development companies in the different sectors to secure pipeline properties, as investment stock is very scarce.
“We have also seen a number of the funds diversify into the residential market, searching for income and yield enhancing residential units. The demand for student accommodation is also on the radar, but this investment decision depends largely on having management services in place that are experienced in dealing with the residential tenant,” said Raad.
He said the private commercial property investment market is faced with financing limitations. The banks are asking for 25% to 50% capital on investment properties and with the recent interest rate increase, a variety of different factors are influencing investors’ decisions.
These include the increase in rates, electricity and municipal accounts, which are not being able to be passed on to tenants across the board.
"Taking these considerations seriously into account, the private investor is applying a higher vacancy factor or risk factor when valuing properties. Such factors have definitely had an impact on yield the private investor is willing to pay. Yields have moved into double digits and sellers are having to adjust to a different investing climate," said Raad.
“Of benefit however is that property investors can now enjoy the luxury of investing in the Reits (real estate investment trusts) that come with the security of good dividends, liquidity and the deferred tax benefit. As a result, and amid ongoing economic challenges, we are seeing the more prudent and conservative investor has moved from owning properties to owning shares in the Reits.”
On August 18, 30 commercial properties, including retail, industrial, office and redevelopment properties will go on auction at The Wanderers Club through Broll Auctions and Sales. These include the Wonderboom Retail Centre in Pretoria, two shopping centres in KwaZulu-Natal, a double volume industrial warehouse in Germiston and one in Brits, an office building in Bellville, Cape Town, A-grade warehouses in KwaZulu-Natal and a variety of properties – including development land - in Gauteng, Limpopo, Mpumalanga, the Free State, KwaZulu-Natal and the Eastern Cape.