SA commercial property market taking the smooth ride to recovery
After many decades of weathering boom or bust rises and falls, it appears that South African Commercial Property investors can now sit back and watch the more developed economies dealing with unfamiliar cycles in their property markets unfamiliar to them that is.
This is according to Tony Bales of Bales & Associates, who says that looking back at the days when the prime interest rate hit 25,5% in 1997, the current situation we are dealing with is very mild.
While office, retail and industrial rental growth is under pressure and banks are not lending on favourable terms, at least interest rates are relatively low and the environment is stable and forecastable.
Bales says that from here onwards we are likely to see improvements rather than any deterioration of fundamentals great news.
Conversely, investors in the US, UK and Europe have had a disastrous 24 months, where huge value has been eroded off property portfolios and many banks are not in a position to lend at all!
It is interesting to note that many international investors are once again starting to look at SA as an investment destination. Bales is currently busy with two transactions that involve cross-border investment activity into SA and says that although these investors are able to invest globally, they are choosing SA due to its stable track record in recent years.
The recent 2009 IPD (Investment Property Databank) results confirm that SA has been one of the best performers in the global investment property arena with a positive return of 8,7% during 2009. Another factor that makes SA stand out is that contractual rentals generally escalate every 12 months - in the developed economies, contractual rentals only escalate every 60 months and this makes SA property a far more attractive investment proposition from a cash flow perspective.
Bales forecasts that while local developers have been extremely quiet during the last 24 months, and are likely to remain so for another year or two, when demand for rental space does improve, it is likely to have a huge positive effect on existing vacant space and will no doubt drive up rentals fairly quickly.
At this stage SA property investors can sit back and be thankful
they did not have to endure the roller coaster ride the developed economies
took. The medium term forecast for commercial property is one of stable,
albeit slow growth into the next year or so - looking further ahead than
that is a dangerous thing to do in SA, concludes Bales.
Article by: www.bales.co.za