Eskom hikes to shock property sector'

THE commercial property sector will be hit hard by Eskom's proposed electricity tariff increase of 35 percent annually over three years. That's the word from the South African Property Owners Association (Sapoa). The industry body said that despite Eskom's revision downwards from its original 45 percent request, the 35 percent increase would still have a negative effect on the industry, already hit hard by the recession.

"Despite indications that the brunt of the recession is behind us, the effects are likely to remain in the longer term, particularly within the commercial property sector and more specifically within the retail property sector.

"The compounding effect of three 35 percent increases translates into a 146 percent increase in the cost of electricity by 2012," said Douw de Kock, chairman of Sapoa's energy efficiency task team.

"Against a two-year backdrop of an industry beset with higher than normal arrears, defaults and vacancies, this doesn't bode well for the recovery of the commercial property sector," he said.

"Facing the prospect of South Africa having the most expensive electricity in the world, it's reasonable to expect that foreign investors would look elsewhere, and again this will have a negative effect on the industrial property sector," De Kock added.

He said the low cost of electricity had always provided a competitive edge for South Africa when energy-intensive consumers were looking at foreign investment, but Eskom's increase would negate this.

"The biggest concern for the commercial property industry is whether tenants will be able to sustain such huge increases in their cost of electricity," added Tsakane Shilubane, the legal services manager at Sapoa.

De Kock said there had been a movement towards creating more efficient environments.

"But the cost of retrofits is high, and where cash flows do not allow for such expenses, it's anticipated that such projects will be on hold for the shorter term."

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