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Jul 29, 2008:
Prospects for the market for commercial property are currently looking much brighter than that of residential property.
According to the latest Rode report regarding the property industry, it seems as if a strong demand exists for industrial property. This is putting upward pressure on rental amounts.
The office sector is also doing fairly well, but some shopping centres' rental income is coming under pressure due to difficult conditions in the retail market.
The higher interest rates, which necessitate investors requiring higher income returns in order to invest in property, can exert downward pressure on prices of these properties.
According to this report the rental amounts of industrial property in the three biggest cities were more than 20% higher than a year ago.
Rental amounts rose by 27% in the central Witwatersrand area, 24% in the Cape Peninsula and 22% in Durban.
Rental amounts for offices in Johannesburg's decentralised office node increased by 16%, and by 15% in Pretoria and Cape Town.
However, Erwin Rode, property economist and valuer, warns that capitalisation rates are under pressure. This means the returns that investors require to be able to invest in property is rising and this is due to their higher earnings from other interest-driven instruments.
This rate was already about 15% in the first quarter.
And in order to make higher returns possible, property has to be sold at a cheaper price.
The fact that rentals are rising at a steady pace can help returns increase to a level that would prevent prices from falling. – David van Rooyen, SakeRapport
