COMMERCIAL property will turn the tables, and begin to outperform residential property growth in terms of building activity, argues John Loos, FNB’s property economist.
Loos says the property sector will be more of a commercial (offices, shopping centers, warehouses) than a residential story this year.
He explains that the residential component responds quickly to economic growth and interest rate cuts than commercial property, hence the boom in recent years.
“But now because of a rapidly growing economy, the commercial sector is catching up with space capacity,” observes Loos.
Loos expects industrial and warehouse space to respond strongly to longer-term declines in vacancy rates, with growth in building activity pipping shopping space to the post.
Tyrone Govender, executive director of industrial fund Metboard Properties, says strong manufacturing growth, spurred by low interest rates, has boosted industrial property occupancy rates and a demand both to purchase and to let. Govender says demand is coming from manufacturing, wholesale and distribution concerns.
Industrial property remains the top-performing sector across South Africa with 65% rental growth over the past two years (30% over 2005), according to the latest eProp Rental Barometer.
Retail growth followed at 55% (27% over 2005) and office growth bringing up the rear at 20% (14% in 2005). Provincially, industrial asking rental growth over the past two years has seen the strongest growth emerge from KZN (+100%) then Gauteng (65%) and then the Western Cape (59%).
“It’s once again a clear case of supply and demand. There is a dearth of industrial space across the country and this is placing huge upward pressure on both land prices and rentals,” says Marc Schneider, eProp research director. Loos also notes that the number of residential property units completed grew at a mediocre pace of 5,5% last year.
“Examining monthly year-on-year growth rates in three-month moving totals, building completions gathered momentum towards the end of the year, growing by 33,2% by December.”
However, he adds, growth in residential building completions will lose momentum through 2006. “It would appear that the number of plans passed, while still growing solidly, is peaking.”
Commercial property, on the other hand, has a more positive outlook, he says. “Growth in square metres of plans passed in the area of industrial and warehouse space was a strong 40% in 2005, compared with 19% in 2004.”
Says Loos: “The gap between plans passed and completed has widened in 2005, suggesting that as long as interest rates and economic environment remains conducive, fixed investment in industrial property in 2006/07 should be strong.”
According to building statistics released by Statistics South Africa, the real value of building plans passed for residential buildings increased by 34,8% to R26,5bn in 2005 (42% growth in 2004).
Activity in the residential market was to a large extent driven by the market for flats and townhouses, says Jacques du Toit, Absa’s property economist.
“This is reflected by the high growth in both the number of units and the total square metres of building plans passed and completed in this segment of the market compared with normal single-stand houses.”
Du Toit says this is an indication of the changing trend towards higher-density living in more secure areas, while building cost increases adding to higher property prices could also have contributed to people opting for smaller, affordable housing.
