Failing businesses to hit stores, offices - Redefine

Commercial property will continue to face difficult conditions as businesses fail and retail tenants are bitten by slower spending, but for investors with cash there will be opportunities. Brian Azizollahoff, the chief executive of Redefine Income Fund, said last week that the property market "is going into two to three very tough years".

But for those with access to cash or capital, prime property assets would come onto the market, creating opportunities. Azizollahoff, who was speaking at the SA Property Owners' Association conference, said those who had made money in the last bull run would make money in the next.

But for property owners to survive these tough times unscathed they would need to intensely manage their assets, he added.

Retail property owners were battling the most as tenants' turnover had dropped sharply due to slower consumer spending.

This could be exacerbated by an increase in council rates, which were passed onto tenants in some lease agreements. Landlords needed to work with tenants by possibly negotiating a rental holiday upfront, while extending the lease in order to recoup income down the line.
"It's no longer a landlord's market, said Azizollahoff. "Arrogant attitudes need to change."

Erwin Rode, the chief executive of property services firm Rode & Associates, said the office and industrial property markets were sound as vacancy rates were low. "When the economy does pick up this sector will be the first to recover," said Rode.

Azizollahoff disagreed, saying that the office and industrial sector was also taking strain, as indicated by a rise in vacancies in that sector.

Frank Berkeley, the managing executive at Nedbank Corporate Property Finance, said investors should not be seduced by the recent fall in interest rates.

"We are in for a difficult time at least for the next 18 months," said Berkeley. "The gross domestic product figures show how bad it is."

Last month Statistics SA reported that the economy had shrunk at a 6.4 percent annual rate in the first quarter after a 1.8 percent contraction in the fourth quarter of last year. This put South Africa in recession.

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