Commercial property is set to boom next year

THE commercial property sector, which includes retail, industrial and office properties, appears set to enjoy a good year in 2005.

While JHI Real Estate chairman Les Weil says he believes the office property sector will lead the property boom next year, other commentators say industrial property will be in favour.

Weil says that after years of static office rentals because of an oversupply, rentals are strengthening and landlords are likely to make fewer concessions.

"Property managers are reducing rent-free periods and tenant allowances at office buildings," he says.

Weil says the market's resistance to speculative office development will also start to shift and the timing may well be positive for new projects .

He says the other property sectors are also looking good for 2005, saying that shopping space continues to be in high demand, with vacancies in JHI's retail portfolio dropping from 4% to 1,3% over the past 12 months.

He says that, according to JHI research, industrial property has led the commercial revival this year with rental increases of between 25% and 30%.

While old existing space can still be leased at gross rentals ranging from R10/m² to R15/m², new space is coming on stream at twice the price, he says.

Andisa Securities property analyst Len van Niekerk says prices have increased across the board for all commercial property types, including retail, industrial and office properties. But Van Niekerk says that growth in market rentals in offices still remains flat at 2%.

He says quality industrial rentals are rising faster and that Investment Property Databank data will show industrial property to be the star performer of 2004.

"Into 2005, office is not a bad bet, but it can be risky. Office offers little competitive advantage opportunities," says Van Niekerk.

Property economist Francois Viruly, of Viruly Consulting, believes the industrial property market will continue to perform well next year and build on the good performance this year. "I think it's a sector that will see high levels of activity in terms of new development."

But he says industrialists who are occupying existing space that is functionally obsolete will use the opportunity to move to more modern industrial sites. "I believe this could have negative implications for the older industrial parts of SA's cities.

"I am increasingly of the view that our urban regeneration programmes should concentrate also on (older) industrial sites," says Viruly.

As far as office property is concerned, Viruly believes that during the first half of next year there will be a "mopping up" of vacant space.

But he believes vacancy levels in the office property market have to drop to at least a 10% level or below before rentals will start to rise to significantly. Average vacancies for the office sector in decentralised zones in SA have averaged between 14% and 15%, he says.

Viruly says the level of construction in the office sector was relatively low during 2004. "The supply side of the equation has been brought under control."

Viruly says the retail property sector will continue to perform well in 2005 on the back of high consumer expenditure. "I also believe that the good performance in the residential property sector and the high level of building activity in the residential market offer opportunities for new neighbourhood shopping centres."

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