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Tuesday Oct 20, 2020

Commercial property falls from decade high

The lockdown and resultant deep recession have taken their toll on the commercial property market, dragging capital growth deeper into negative territory in the first half of the year.

Half yearly MSCI data suggested that the magnitude of negative capital growth for this year could be greater than what FNB had originally projected, and it forecast that the negative growth trend would continue into next year. Average vacancy rate was expected to rise more sharply heading towards 2021, placing further downward pressure on rentals and upward pressure on cap rates, says John Loos, a property sector strategist at FNB Commercial Property Finance.

"More likely, we think that the All Property Vacancy Rate (using MSCI data) will move higher into double digit rates heading towards 2021, continuing to exert downward pressure on property rentals, income and property valuations," he said.

He said confidence in the Listed Property Sector on the JSE remained extremely weak. The Listed Property Index at last week was about 53.3 percent down on the end-2019 level. Since 2014, the commercial property market had been gradually weakening, with broadly declining half-yearly total returns that declined from a decade high of 9.6 percent in the first half of 2013 to -1.7 percent by the first half of 2020.

"The weakening trend was sped up by the Covid-19 lockdown shock to property income, with total half-yearly returns declining sharply from 3.6 percent in the latter half of 2019 to -1.7 percent in the first half of 2020," he said. With property incomes under severe pressure, income return also declined, from 3.9 percent for the final half of last year to 3.6 percent in the first half of this year, Loos said.

Staff Reporter

Cape Argus19 Oct 2020


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