SAPOA (South African Property Owner's Association), the voice of the commercial property industry in South Africa, welcomes Eskom's latest indication that it will now request a 35% increase, compared to its original 45%.

However, SAPOA is of the view that the 35% increase will have a negative effect on the industry, already hard-hit by the recession.

SAPOA supports the interest from Eskom to partner with a private company (30%) in the new Kusile project as this would reduce their funding need and is in line with international trends in the energy industry.

"Despite indications that the brunt of the recession is behind us, the effects are likely to remain in the longer term, particularly within the commercial property sector and more specifically within the retail property sector," says chairman of SAPOA's Energy Efficiency Task Team, Douw De Kock.

He further explains that the compounding effect of three 35% increases translates into a 146% increase in the cost of electricity by 2012. "Against a two-year backdrop of an industry beset with higher than normal arrears, defaults and vacancies, this doesn't bode well for the recovery of the commercial property sector."

"Facing the prospect of South Africa having the most expensive electricity in the world, it's reasonable to expect that foreign investors would look elsewhere for investment opportunities, and again this will have a negative effect on the industrial property sector," says De Kock.

He argues that the low cost of electricity has always provided an attractive and competitive edge for South Africa when energy intensive consumers were looking at foreign investment. "Eskom's increase will negate this."

Tsakane Shilubane, manager of legal services at SAPOA, says the biggest concern for the commercial property industry is whether tenants will be able to sustain such huge increases in their cost of electricity.

De Kock says in preparation for the increasing costs of electricity there has been a movement towards creating more efficient environments. "But, the cost of retrofits are high and where cash flows do not allow for such expenses, it's anticipated that such projects will be on hold for the shorter term," he adds.

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