Rate hikes ‘no threat to offices’

THE recent interest-rate increase and the threat of more hikes to come this year will not put a damper on commercial property development activity over the next year, says the latest Rode’s Report.

And increasing interest rates will reinforce the stable residential property market and prevent any chance of bubble conditions emerging in the market, the report says. It paints a positive picture for commercial building activity.

Property economist Erwin Rode says rising interest rates are generally “bad news” for residential property activity. “Everybody was expecting it. Maybe it came earlier than people thought,” he says.

His group’s bullishness about building activity was not based so much on residential development as on commercial property building activity.

He says economists do not expect the South African economy to stall, and that the cooling off engineered by higher interest rates does not “spell a catastrophe” for house prices or residential construction.

“It’s a cooling off and a very necessary one at that. There is now less of a chance of a housing bubble being created so it is sound macroeconomic activity.”

Rode says he expects office construction activity to start picking up from next year on the back of sharply rising office rentals.

Garth Johnson, editor of Rode’s Report, says the group is expecting a 15,5% increase in residential building activity next year, a reduction from the 19% recorded last year.

But commercial building activity was expected to increase 13% from 7%.

John Loos, property strategist at First National Bank, says he agrees with Rode. “ I don’t think interest-rate hikes will slow commercial building activity down because vacancy rates are very low in industrial property and office property now.”

Article by: - Nick Wilson - www.businessday.co.za