SA's nominal commercial returns tops
2009-03-31 · Property Market Reports
Despite nominal returns on commercial property in SA dropping sharply to 13% in 2008 from 2007's 27,5%, the performance is still the highest in the Investment Property Databank (IPD) indices for all countries published to date.
However, this double-digit figure equates to inflation-adjusted "real returns" of just 1,3% when last year's high inflation rate of 11,5% is factored in, according to latest SAPOA/IPD South African Property Index.
The index indicates that the resilience of the SA returns contrasts sharply with the pattern seen across Europe, particularly in the UK and Ireland, where capital values plummeted last year due to yield rises across all sectors. The nominal total returns for the UK and Ireland in 2008 were -22,1% and -34,2% respectively.
"The relative resilience in SA can, in part, be ascribed to economic effects lagging the international cycle and less turbulent financial markets. We have not witnessed the rapid re-pricing of real estate that is being experienced elsewhere, certainly not on the same scale," says Stan Garrun, managing director at IPD South Africa.
The nominal returns were the lowest in six years.
Capital growth in the SA commercial real estate market in 2008, despite being markedly slower than the previous year, was positive across all sectors.
The index showed that last year's performance was led by industrial with a recorded 18,1% total return, followed by offices with 14%, and retail at 11,1%.
Income returns for industrial and offices were 9% and 9,1%, respectively, while retail yielded 7,8% to produce the all property average income return of 8,3%.
The strength of capital growth differed more widely across the sectors. Industrials led the way, returning 8,4%, followed by offices, at 4,6%, and retail at 3,1%, to produce an average of 4,4% compared to 17,5% last year. All property yields moved out by 20 basis points over the 12 months, ending December 2008 at 7,7%.
Compared to other asset classes, South African direct property outperformed equities and property equities. In 2008, equities returned -23,2% according to the JSE All Share Index, while the JSE PLS Index and the JSE PUT Index returned -2,3% and -9,7%, respectively.
However, SA property returns lagged behind the bond markets, which returned 17%, as measured by the All Bond Index.
Long-term property returns remain high, with three and five annualised total returns at 22,4% and 24,1%, respectively. Over the full 14-year history of the index, annualised total returns now stand at 16,2%. - Eugene Brink
However, this double-digit figure equates to inflation-adjusted "real returns" of just 1,3% when last year's high inflation rate of 11,5% is factored in, according to latest SAPOA/IPD South African Property Index.
The index indicates that the resilience of the SA returns contrasts sharply with the pattern seen across Europe, particularly in the UK and Ireland, where capital values plummeted last year due to yield rises across all sectors. The nominal total returns for the UK and Ireland in 2008 were -22,1% and -34,2% respectively.
"The relative resilience in SA can, in part, be ascribed to economic effects lagging the international cycle and less turbulent financial markets. We have not witnessed the rapid re-pricing of real estate that is being experienced elsewhere, certainly not on the same scale," says Stan Garrun, managing director at IPD South Africa.
The nominal returns were the lowest in six years.
Capital growth in the SA commercial real estate market in 2008, despite being markedly slower than the previous year, was positive across all sectors.
The index showed that last year's performance was led by industrial with a recorded 18,1% total return, followed by offices with 14%, and retail at 11,1%.
Income returns for industrial and offices were 9% and 9,1%, respectively, while retail yielded 7,8% to produce the all property average income return of 8,3%.
The strength of capital growth differed more widely across the sectors. Industrials led the way, returning 8,4%, followed by offices, at 4,6%, and retail at 3,1%, to produce an average of 4,4% compared to 17,5% last year. All property yields moved out by 20 basis points over the 12 months, ending December 2008 at 7,7%.
Compared to other asset classes, South African direct property outperformed equities and property equities. In 2008, equities returned -23,2% according to the JSE All Share Index, while the JSE PLS Index and the JSE PUT Index returned -2,3% and -9,7%, respectively.
However, SA property returns lagged behind the bond markets, which returned 17%, as measured by the All Bond Index.
Long-term property returns remain high, with three and five annualised total returns at 22,4% and 24,1%, respectively. Over the full 14-year history of the index, annualised total returns now stand at 16,2%. - Eugene Brink
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