Key Insights On The Real Estate Sector In South Africa

The global financial crisis had less of an impact in South Africa than on many developing countries. Growth had already been slowing in 2008. The economy contracted 1.8% in 2009. We think that it is reasonable to suggest that GDP will expand 4-5% annually from 2011 to 2014. However, this depends on continuing Chinese demand for South African mineral exports.

Although rental rates fell in each of the three main sub-sectors last year – and in each of the three cities (Johannesburg, Cape Town and Durban) for which we gathered data – the slippage was less than in many of the developing countries whose real estate sectors are surveyed by BMI. We therefore conclude that, with the possible exceptions of the office and retail sub-sectors in Durban (where vacancy rates have been 20-25%) the demand and supply of real estate to rent is broadly balanced. Market protagonists have taken a realistic view of the long-term challenges in South Africa’s business environment.

At the margin, new projects in Johannesburg may lift rental rates. However, there is no evidence that the entire dynamics of commercial real estate in the city will be changed by the availability of prestigious new retail/office complexes. Our sources in Cape Town and Durban gave little indication that new developments will have an impact in those cities.

It also appears doubtful that the World Cup will have a medium- to long-term impact on the commercial real estate sector. There should be a boost to consumer spending and, hopefully, confidence. It has provided the impetus for substantial investment in new sporting (and transport) infrastructure which should contribute positively to the overall business environment in South Africa. However, the World Cup is unlikely to cause the supply/demand balance to change very much.

Therefore, we are not looking for much change in rental rates, capital values or yields over the coming years.

Interviews with our in-country sources were conducted in March 2010.

Key Features Of This Report

This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: what are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?

For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.


Executive Summary
SWOT Analysis
South Africa Real Estate SWOT
South Africa Economic SWOT
South Africa Business Environment SWOT
Real Estate Investment Trusts
Table: REIT Returns – FTSE EPRA/NAREIT Global Real Estate Index And Components, 2007-Q110 (% change)
Real Estate Market Overview
Table: South Africa’s Real Estate Market – Rentals, 2008 And 2009 (m²/month ZAR)
Table: South Africa’s Real Estate Market – Net Yield (%)
Table: South Africa’s Real Estate Market – Terms of Contract/Lease
Table: South Africa Real Estate Markets - Available And Vacant Space (m²)
Forecast Scenarios
Real Estate Outlook
Table: South Africa’s Real Estate Market – Rentals (m²/month ZAR)
Table: South Africa’s Real Estate Market – Net Yield 2008-2014 (%)
Construction And Infrastructure Outlook
Table: South Africa’s Construction Industry Data And Forecasts, 2007-2014
South Africa’s Monetary Policy Outlook
Macroeconomic Outlook
Table: South Africa’s – Economic Activity, 2007-2014
Business Environment
Real Estate/Construction Business Environment Ratings
Table: Middle East And Africa Real Estate/Construction Business Environment Ratings
South Africa’s RECBER
Africa Project Finance Ratings
Table: Design And Construction Rating
Table: Commissioning And Operating Rating
Table: Overall Project Finance Rating
Middle East And Africa’s Business Environment Overview
South Africa’s Business Environment
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Table: Labour Force Quality
Table: Middle East And Africa, Annual FDI Inflows
Table: Trade And Investment Ratings
Table: South Africa’s Top Export Destinations, By Destination Country, 2001-2008 (US$mn)
Company Monitor
ERA Real Estate South Africa
Group Five
Murray & Roberts Group
Orion Real Estate
Pam Golding Properties Group
SA Corporate Real Estate Fund
Seeff Properties
Wilson Bayly Holmes-Ovcon
BMI Methodology
How We Generate Our Industry Forecasts4
Construction Industry
Bank Lending
Real Estate/Construction Business Environment Rating
Table: Weighting Of Indicators
Project Finance Ratings Indicators
Table: Design And Construction Phase
Table: Commissioning And Operating Phase – Commercial Construction
Table: Commissioning And Operating Phase – Energy And Utilities
Table: Commissioning And Operating Phase – Transport

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