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Jun 30, 2008:
Property fundi: you can't go wrong with office investment in Sandton; problems could loom for businesses far from Gautrain route.
Top property economist Francois Viruly, of Viruly Consulting, says demand for Sandton office property outpaces supply - and this trend is set to continue for the foreseeable future.
Sandton, Gauteng, is regarded as one of the African continent's premier business districts.
What's more the Gautrain, a new rail service being developed to ease traffic congestion on highways in Gauteng, is set to make Sandton and other business districts in its path even more popular.
Speaking to Moneyweb's Alec Hogg on the SAfm Market Update at the weekend, Viruly said the Gautrain "will start connecting the different nodes - in other words, Sandton, Rosebank and the city".
"Where we are used to seeing small nodes we will suddenly see one big office node being connected to a rapid-rail system."
Viruly said the trend is towards "linear markets" along a rapid-rail transport service and there "is a point that says if you are out of that, it's a bit of a problem".
He said vacancy rates are "still very, very low in most of the decentralised nodes of South Africa" and at maybe 2-3%.
"I've largely taken the view that we have a sort of natural vacancy rate, call it that, of about 6%," said Viruly of why he believes the market is "still very, very tight from a supply perspective".
The property economist said he has also taken the view that Sandton probably needs about 70 000m² of additional commercial property annually "just to keep up with demand", while decentralised Johannesburg "probably 250 000m²".
"So if we just keep on growing at the rate that we are, let's say 5% growth or something, yes, there will always be a place for cranes," said Viruly, responding to a question about whether the skyline is starting to change in Sandton.
Viruly noted that when you start hitting rentals of R130-R140/m² in an economy that "is maybe faltering a bit", affordability starts to play a role. Tenants maybe start downgrading in the choice of building, he said.
Viruly also said that most developers are now staying away from greenfield developments and moving to older buildings which have power.
