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Wednesday Sep 21, 2011

Tough outlook for commercial property in 2011

"When evaluating the commercial office environment, according to Sapoa's latest vacancy schedule for the second quarter of 2011, South Africa's overall office vacancy rate has now breached 10 percent." says Rodney Luntz of High Street Auctioneers.

"This is a first in many years - we hadn't seen such levels since 2004. Furthermore, what are deemed popular office nodes have now experienced a decrease, including Bedfordview, Braamfontein, Bruma, Cresta, Blackheath, JHB CBD, Fourways, Greenstone, Hyde Park, Dunkeld, Randburg and Rivonia. Sandton CBD vacancies are at 9.6 percent, which is better than the situation a mere nine months ago when the vacancies in the Sandton CBD were recorded at 11.4 percent."

"This being said, it must be noted that even at a level of 9.6 percent that this is a high figure. Additional new developments on the cards will cause this percentage to increase drastically.

"In the industrial sector, manufacturing activity plunged in July with manufacturing activity producing a reading of below 50 which reflects a contraction. Furthermore, the sector shed 68 000 jobs in the first quarter of this year. Both these factors have an impact on the sector and ultimately on South Africa's economic growth and this in turn affects the industrial and commercial office market."

He says additional costs such as electricity are also putting pressure on rental properties. Dramatic electricity tariff increases of more than 25 percent this year alone have sent operational costs skyrocketing and these cost pressures are being passed on to tenants. He says similar increases can be expected in the near future. Interest rates are expected to start increasing towards the end of the year with the expected rise in CPI.

"South Africa as an emerging economy is still very dependent on what happens globally and the effects of a double-dip recession as well as the downgrading of the USA credit rating is felt in our own economy. With manufacturing activity also slowing in Europe, Asia and the US, South Africa has seen a knockon effect on exports which too are slowing and this ultimately affects the struggling industrial market."

He says the outlook for commercial property has definitely taken a knock and the current sluggish state is here to stay for some time. However there is a definite opportunity in the market place even in these difficult economic times.

By working with professional property consultants tenants will be able to tap into expertise when negotiating with landlords who are sitting with high vacancies in desirable nodes.

"We are seeing landlords offering incentives by way of increased tenant installation allowance, as well as lower rentals and favourable terms in order to entice tenants into their buildings."

Weekend Argus (Sunday Edition)


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