City of Cape Town

By: Cape Town City Property  11-11-2011

Stephen Cranston

Thursday, 7 Apr 2011

Francois Viruly

The IPD (Investment Property Database) property index in SA ranked the highest of the 23 countries surveyed for eight consecutive years

The IPD (Investment Property Database) property index in SA ranked the highest of the 23 countries surveyed for eight consecutive years. That run came to an end this year, but was hardly a crash.

There was a total return of 13,3%, with offices providing the highest at 14 %, industrial 13,6% and retail 13,1%. This was better than the 8,8% achieved in 2009, but at no point over the past decade has SA commercial property delivered negative returns, unlike other markets surveyed by the IPD, such as the UK, the US and Ireland.

IPD SA MD Stan Garrun believes that commercial property is going through a sustainable though drawn-out recovery.

Viruly Property Clock

But University of Cape Town economist Francois Viruly says the economic recovery is still subdued and fragile, which does not bode well for employment , seen as a major driver of the demand for space.

Commercial building plans passed for the first nine months of 2010 fell by 40%, says Viruly. “Developers are putting plans on hold, which is no surprise with high vacancies around SA.”

The main concern is vacancies in the office market, which remain stubbornly high at 10,6%. In some nodes it is well above this average, and it is not just the older office nodes, such as the Johannesburg and Durban CBDs, that are struggling. Vacancies are growing in Bryanston/Epsom Downs (12,7%), Bruma (13 %) and Hyde Park/Dunkeld (11,5%) in Johannesburg. They are also increasing in the Durban/Berea area (to 19,6%), Hatfield, Pretoria (to 11,5%), and Newton Park, Port Elizabeth (20,2%).

At least, though, office rentals have been growing modestly. According to property consultant Erwin Rode, office rentals are up between 3% and 5% in the last quarter of the year in the decentralised nodes in Johannesburg, Durban and Pretoria.

Cape Town rents fell, however, by 4% in the last three months of 2010 as there was an oversupply of property in the Century City precinct around the Canal Walk shopping centre and a glut of offices in Claremont in the southern suburbs.

The industrial market is not easy, either. Rode says industrial rentals contracted last year in key areas such as the central Witwatersrand (where they fell a further 3% in the fourth quarter) and Durban (down 1%). In the Cape Peninsula they were unchanged. Only in Port Elizabeth did they increase by 8%.

Rode says that for the past five quarters use of manufacturing production capacity has been increasing, and this eventually has to translate into increased use of manufacturing capacity. But poor consumer demand might well offset this. A weaker rand would also be good for industrial property if it encourages exports.

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PGP’s managing director for the region, Laurie Wener, says the past few years have been challenging ones for the property industry, but PGP’s unit sales in this area have increased by about 10 percent compared to the financial year ending February 2010, and by 13 percent in total sales value over the same period.