Rising vacancies and a sharp increase in municipal and electricity tariffs are among the risks that will slow down earnings growth in the listed property sector this year. Analysts nevertheless expect that the sector will achieve earnings growth of 6% for the next 12 months, bringing the average distribution to 9.5%.
Macquarie First South property analyst Leon Allison says this shows the defensiveness of listed property in a low-yield environment.
As far as vacancy rates are concerned, he says the office sector is faring worst, especially specific nodes where vacancies are in double-digit territory.
Areas where vacancies are a source of concern include Braamfontein, where 13.6% of the office space was standing empty in the fourth quarter of last year, according to the latest report by the South African Association of Property Owners (Sapoa) on vacancies in the office sector.
Other areas include Constantia Kloof, with a 12.3% vacancy, Fourways with 12.4%, Rivonia with 18.9% and Claremont in the Western Cape with 16.7%.
He expects the total vacancy rate (including retail and industrial property) to be 7.2% by year-end. This is however light years away from the 13% at which vacancies peaked in 2003 for all three commercial property sectors.
A further risk to the sector and the economy will be the recent and future sharp increases in municipal and electricity tariffs.
Macquarie First South's favourite listed property share in the short term is Redefine, where a 15% total return (income and capital) is anticipated over the next 12 months. The yield forecast for the entire sector for the next year is 11%.
