Commercial property holds out

The South African commercial property market performed well in 2008 despite the economically unstable environment, Marna van der Walt, CEO of property services company JHI, said on Thursday. Van der Walt said however that the good performance of the overall property market was not expected to continue.

"This is due to the economic slowdown, increased interest rates and their effect on property and prices, the general economic outlook and declining business confidence, escalating construction costs and the impact of power cuts," she said.

Reviewing the industry and the company's R31bn worth of assets under management, Van der Walt highlighted that the industrial sector's good performance over the last few years could be attributed to improved economic conditions and low interest rates, as well as the growth in manufacturing production.

But the manufacturing environment has been severely impacted by a weaker demand for locally produced interest rate-sensitive goods, power cuts and a general weakness in global economies.

"Due to the changing local economic environment, retailers were more cautious this year because of the weaker retail environment," Van der Walt said, noting the pressures on the retail industry.

She said retail businesses, which are largely driven by credit, were starting to be negatively affected by the interest rate environment.

Retailers battling

Clothing and furniture retailers, more than food retailers, have been affected as consumers avoided credit retailers and started using cash for their purchases.

Van der Walt said that decreased consumer spending was also putting pressure on retail tenants, and some were now battling to meet contractual rental payments.

Notwithstanding the overall performance of the retail sector, office nodes in all the major cities were starting to run out of available office space.

"The demand for space has led to good rental growth, which is expected to continue over the next twelve months," Van der Walt said.

With vacancies at a record low, the demand for new space was increasing with major users of office space reverting to the construction of new buildings.

"The market is responding to this demand, with a number of new developments currently under construction or in the pipeline," she said.

But she pointed out that the rising cost of construction was exerting downward pressure on profit margins, which would in turn result in further increases in rental rates.

"Demand for space, and the availability of zoned, vacant land are pushing up land prices, which will further contribute to increased rentals in order to make new developments financially viable," she said.

However, Van der Walt warned that investors should keep an eye on operating costs, which may spiral out of control due to rising inflation, interest rate hikes and other general increases.

 

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