Office acquisitions in keeping with sector trend

By Alistair Anderson

Investec Property Fund (IPF) last week announced the conclusion of two major office portfolio acquisitions‚ namely the Nicol Main and the RPP portfolios‚ which it had agreed to buy last year.

The fund has been on an aggressive buying spree since listing in April 2011 with R1.7bn worth of assets. Its portfolio is now worth about R6bn.

Property groups are stocking up their portfolios with offices as they anticipate that offices in South Africa will perform better as a property class when the country’s economic growth gains momentum.

“It makes sense that property groups will buy office assets in anticipation of when things eventually turn. This could just take a while‚” Old Mutual Investment Group SA portfolio manager Evan Robins said last week.

South Africa’s economy grew 1.9% last year‚ and is expected to grow 2.7% this year and 3.2% next year‚ according to the Reserve Bank.

According to research by the Investment Property Databank‚ last year industrial property was the winner in terms of property assets‚ amassing a total return of 17.1%‚ marginally outperforming retail properties’ 16.8%.

Offices underperformed the other two sectors but still managed a 13.6% total return.

Retail‚ the most defensive of listed property assets‚ makes up the bulk of them. At the end of last year‚ 51% of the listed property sector’s assets were in retail‚ followed by offices at 31% and industrial properties at 18%. Retail properties including large malls are expected to rule listed property this year‚ too.

“There are many retail opportunities in South Africa‚ and while we look at each thing we buy on a case-by-case basis‚ much of what we see is retail related‚” Arrowhead Properties chief operations officer Mark Kaplan said last week on announcing the acquisition of Vividend Income Fund‚ which holds a diversified retail portfolio.

The head of listed property funds at Stanlib‚ Keillen Ndlovu‚ says while vacancies at A-grade offices should ease a bit this year‚ B-grade offices are posing a risk to the health of South African listed property.

“One risk is that there are rising vacancies at B-grade offices. Large companies can be persuaded to get into new A-grade offices‚ but B-grade is difficult to fill when macroeconomic conditions are weak‚” he says.

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