Property analysts are more optimistic about the prospects for the commercial property sector and say the worst pain is over.

Although this sector’s operational environment will remain challenging over the next 12 months, early signs are emerging that the underlying circumstances are improving.

This sector has been characterised by rising vacancy rates over the last two years, which led to the growth in its income disbursements decelerating during this period.

Despite this listed property was the best-performing asset class thus far in 2010 and also over the last 12 months, according to Catalyst’s latest monthly property report.

The SA listed property index’s total returns (income and capital) for the year to date were 17,95%, followed by unit trusts with a total return of 9,94%, cash with 4,12% and shares with 3,66%. Over the last 12 months the listed property index delivered a return of 27,36%, shares delivered 19,51%, unit trusts 12,96% and cash 7,4%.

Paul Duncan, property analyst at Catalyst, says there are signs that the average vacancy rates are starting to improve, which will lead to an improvement of growth in market rental levels.

“The rise in vacancy levels was largely due to a speculative oversupply of mainly office space, which was launched in 2008 and recently came to market.”

He says the sector’s saving grace was that not many new developments were launched after the worldwide economic downturn.

August is a busy month for the listed property sector and nine companies, or 60% of the sector, are releasing either their annual or interim results. Duncan says these results and comments will give investors good insights into how the fundamental principles of the commercial property sector will influence the prospects for the growth in income disbursements.

Anton de Goede, property portfolio manager at Coronation, says Capital, which recently released its interim results for the six months until the end of June, already succeeded in cutting its vacancy rate down to 3,4% after 30 June. He says based on the strong correlation between economic growth and the commercial sector, the prospects are positive.

However, he says the economic growth has been largely supported by government spending. “Of core importance in the future is that the economic growth trickles down to the corporate sector, which will be more important that supply and demand”. – Elma Kloppers, Sake24

Readers' Comments Have a comment about this article? Email us now.