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February 2015
Infrastructure & Mixed Use
T
his is despite the market re-
maining as flat as it has over
the past five years, says Gerrie
van Biljon, Executive Director at Busi-
ness Partners. The company oversees
a property portfolio of almost R1
billion.
Van Biljon believes that the South
African property market is less ex-
posed to shocks in the global econo-
my than for example, the stock mar-
kets. “Any of the imminent setbacks
to the global economy, such as the
raising of the close-to-0% interest
rates of the developed world, or the
tapering off of America’s policy of
quantitative easing, will reflect im-
mediately in the JSE indices, but not
necessarily in property values.”
He says that the fact that there
are very few bargains to be found in
South Africa’s commercial property
sector – particularly manufacturing
and retail space – despite the econo-
my’s sluggish crawl back from the re-
cession, proves themarket’s status as
a solid investment in difficult times.
“Business owners havebeenunder
pressure since the property boom
ended in 2008, most have either
exited the market or now have their
affairs in order. Investors also tend
to hang onto their property invest-
ments rather than dispose of them in
order to invest in low bearing return
categories. The consequence of this is
that capitalisation rates remain virtu-
ally unchanged: meaning the price of
commercial and industrial properties
did not take a major dip, unlike the
residential market where prices fell.”
Owners of non-premium office
blocks are therefore unlikely to get
the rental escalations for 2014 that
they would like, as the high level of
vacancies places tenants in a strong
negotiating position.
He says that the anaemic economy
will continue to pull down rental
escalations for commercial and in-
dustrial properties in the year ahead.
“Tenants are increasingly opting for
shorter leases, and landlords are
struggling to attain a 10% rental in-
crease owing to the strong bargaining
position of tenants. This, he says, is a
far cry from the 9% to 14% increases
they could apply a few years back.
If such weak escalations continue,
they are likely to put pressure on the
long-term value of property.”
Of more immediate concern for
property owners is the increase in the
cost of maintaining and managing
properties, suchaswages for cleaning
staff and security guards, mainte-
nance services, municipal property
rates and electricity charges.
“These costs are difficult to con-
trol, but have a major impact on the
return on investment that a property
brings to a portfolio. Under such dif-
ficult circumstances, it becomes even
more important for an investment
property to bewell managed tomain-
tain its value. Business owners and
investors, who are too distracted to
pay attention to their properties, are
well advised to appoint professional
property managers.”
The interest rate is another risk
factor to consider as, should it go
up, property values will stagnate as
the investment becomes less afford-
able and attractive. Van Biljon says
that given the risks, investors should
consider buying with a co-investor,
in order to spread exposure to risk.
“Business Partners has co-in-
vested in many retail and industrial
complexes in addition to purchasing
such property outright. As it is dif-
ficult to time the market, property
must therefore be seen as a long-term
investment,” concludes van Biljon.
■
SA property safe haven for investors
Quality commercial and industrial properties in South Africa
will continue to boast yields comparative to most other
investment classes in the near future.