IEASA National - News

Strong confidence in office market    Article Date :28 Aug 2006 Comments from SA Property Report 2006 According to the SA Property Report 2006, investors are now seeking out opportunities in commercial and industrial property markets as opposed to the residential market. This is confirmed by Standard Bank economists Elna Moolman and Gina Schoeman, who maintain that the slowdown in the residential market is now clearly entrenched, with a persistent deceleration in the growth of house prices. The SA Property Report 2006 also highlights a burgeoning demand for sectional title office and industrial properties, compounded by a lack of available quality stock. According to JHI managing director, Bongani Khumalo, "Business confidence across the commercial property terrain remains strong, with retail, industrial and office enjoying similar levels of confidence in the short-term." JHI director of international and Gauteng broking divisions, Wayne Wright, elaborates further by saying that offices made a resounding turnaround in 2005, with owner/occupiers and large corporations taking positions last seen three years ago. He says the growth in the services sector, as represented by finance, insurance and property, is expected to grow by between 5,5% and 6% over 2006 and 2007. "With office planning growth at 36% and completions at 13% in 2005, supply will largely be driven by owner/occupier demand, particularly sectional-title office space, and by the feasibility of new developments for leasing. "Vacancies are down to levels last seen about five to six years ago, and rental growth has grown to about 1% annually, from levels of 8%, 4% and 11% in 2004, 2003 and 2002 respectively, as reported by the South African All Property Index. "This strongly points to offices being in an established stage of the property cycle upswing, suggesting that if oversupply does not happen, offices could deliver the best returns over the medium term (2006-2008)." Furthermore, Wright says that industrial property owners have experienced a marked decrease in vacancies, which has seen gross asking rentals for new warehouse and distribution space increase to R35 m2 and higher in some areas. A year ago average asking rentals were about R20 m2 to R24 m2 in sought-after industrial nodes. "Well-located existing industrial buildings and land will offer strategic opportunities for redevelopment and increase their intensity of use. Overall, the industrial property market can look forward to sustainable growth," says Wright. John Loos, property strategist for FNB Commercial Banking, concurs with these viewpoints because, according to him, the May building statistics show that residential building is waning but that industrial and office space activity is set to pump. "I believe that it will be the retail side of commercial property that will be the first to lose its legs, while industrial property will be the top performer in terms of returns in 2006, and office space will bring up the rear to take top honours in 2007," he says. "Building plans passed suggest that the industry shares such a view, with plans passed in terms of square metres for retail space having declined sharply." The RMB economics team anticipates 100 basis points' worth of interest rate hiking during the current cycle. This is expected to have a mildly negative impact on an already slowing residential market and its building activity, as well as on retail development, although retail was also set to see a slowdown in any case. The latest results from eProp's Commercial Property Confidence Index (CPCI) point to the fact though that business confidence in the commercial property market has taken a slight downturn. The index shows a net balance reading of 24% (0 being neutral) compared with 49% in February 2006 and 51% in August 2005. This is based on the surveyed responses from a number of commercial property based companies in July/August 2006. Calculated on a mix of ten equally weighted variables comprising both "hard" and "soft" aspects, the index reflects a six-month forward projection for the commercial property sector. In August 2006 the index reached 62, down from 75 over the previous two readings. According to the SA Property Report 2006, investors are now seeking out opportunities in commercial and industrial property markets as opposed to the residential market. This is confirmed by Standard Bank economists Elna Moolman and Gina Schoeman, who maintain that the slowdown in the residential market is now clearly entrenched, with a persistent deceleration in the growth of house prices. The SA Property Report 2006 also highlights a burgeoning demand for sectional title office and industrial properties, compounded by a lack of available quality stock. According to JHI managing director, Bongani Khumalo, "Business confidence across the commercial property terrain remains strong, with retail, industrial and office enjoying similar levels of confidence in the short-term." JHI director of international and Gauteng broking divisions, Wayne Wright, elaborates further by saying that offices made a resounding turnaround in 2005, with owner/occupiers and large corporations taking positions last seen three years ago. He says the growth in the services sector, as represented by finance, insurance and property, is expected to grow by between 5,5% and 6% over 2006 and 2007. "With office planning growth at 36% and completions at 13% in 2005, supply will largely be driven by owner/occupier demand, particularly sectional-title office space, and by the feasibility of new developments for leasing. "Vacancies are down to levels last seen about five to six years ago, and rental growth has grown to about 1% annually, from levels of 8%, 4% and 11% in 2004, 2003 and 2002 respectively, as reported by the South African All Property Index. "This strongly points to offices being in an established stage of the property cycle upswing, suggesting that if oversupply does not happen, offices could deliver the best returns over the medium term (2006-2008)." Furthermore, Wright says that industrial property owners have experienced a marked decrease in vacancies, which has seen gross asking rentals for new warehouse and distribution space increase to R35 m2 and higher in some areas. A year ago average asking rentals were about R20 m2 to R24 m2 in sought-after industrial nodes. "Well-located existing industrial buildings and land will offer strategic opportunities for redevelopment and increase their intensity of use. Overall, the industrial property market can look forward to sustainable growth," says Wright. John Loos, property strategist for FNB Commercial Banking, concurs with these viewpoints because, according to him, the May building statistics show that residential building is waning but that industrial and office space activity is set to pump. "I believe that it will be the retail side of commercial property that will be the first to lose its legs, while industrial property will be the top performer in terms of returns in 2006, and office space will bring up the rear to take top honours in 2007," he says. "Building plans passed suggest that the industry shares such a view, with plans passed in terms of square metres for retail space having declined sharply." The RMB economics team anticipates 100 basis points' worth of interest rate hiking during the current cycle. This is expected to have a mildly negative impact on an already slowing residential market and its building activity, as well as on retail development, although retail was also set to see a slowdown in any case. The latest results from eProp's Commercial Property Confidence Index (CPCI) point to the fact though that business confidence in the commercial property market has taken a slight downturn. The index shows a net balance reading of 24% (0 being neutral) compared with 49% in February 2006 and 51% in August 2005. eProp says commerci CLICK HERE TO RETURN TO THE MAIN NEWS PAGE