With office vacancies decreasing and yields doing well, the sector is set to become ‘hot property’, reckons François Viruly, independent property economist.
Viruly adds the highest capital growth will be in the office sector; good management in industrial property will mean increased rentals and “if you’re in the yield game, regional shopping centres are the place to be”.
CBD office rentals showed positive growth in the last quarter of 2005 while decentralised rentals took a slight dip nationally, the latest Rode Report revealed.
Compared to the year before, returns for nominal grade-A decentralised office rentals are up from 5 to 20% while CBD office rentals managed 15% growth.
The report also predicted double-digit growth in the non-residential market over the next few years. Lower capitalisation rates and relatively low and stable interest rates indicate the non-residential property market is on the brink of a major upswing.
Capitalisation rates (expected net income for the first year divided by the purchase price) are the non-listed property sector’s equivalent of the forward earnings yield of shares.
“Increasing building costs will stop supply in its tracks in the next year”, reckons Viruly. In a market where demand outstrips supply, he adds foreign contractors in the market will increase and building trends will focus on renovations rather than new buildings.
Building-construction input costs grew by 7% during 2005.
Viruly expects small manufacturers and entrepreneurs to move to Industrial Development Zones to form economic clusters.
The 30% increase in the lower middle class over the past year has increased spending power and investors are taking advantage of this opportunity, says Viruly, with Checkers stores opening in Katlehong, Atteridgeville, Diepkloof and Khayelitsha over the next two years.
Viruly says the buy-to-let market for houses above the R1m price tag is not performing well, but it is a different story for properties below this. He adds the 5-7 LSM range is driving demand.
John Loos, FNB Property economist, says the residential property market is taking a breather at the moment, with much unfinished business in the pipeline.
Loos predicts solid economic growth and a further mild cut in interest rates which will increase average house prices by 85% in 2010, compared to end-2005 levels.
