Commercial property back in vogue

12 Mar 2012

Property investors are reportedly snapping up bargains at auctions with commercial and industrial property seemingly being favoured over residential.

Roy Lazarus, spokesperson for Park Village Auctions says properties auctioned by Park Village were sold at average returns of about 8 percent, excluding capital gains which have the potential to deliver a higher total rate of return for owner-occupiers and investors.

Park Village Auctions notes that nationally, commercial and industrial property delivered around 5 percent returns for the last six months of 2011 according to the South African Property Owners Association and Investment Property Databank report.

Roy Lazarus, spokesperson for Park Village Auctions, says properties auctioned by Park Village were sold at average returns of about 8 percent, excluding capital gains which have the potential to deliver a higher total rate of return for owner-occupiers and investors.

Lazarus says the demand for commercial property has been evident in some of the recent properties sold at auctions by Park Village.

These included an incomplete commercial development in Umhlanga in KwaZulu-Natal for R72 million, a three storey commercial building in Savoy Estate for R6.5 million, a warehouse and office opposite the Grand Central Airport in Midrand for R6.5 million, an office block in Marshall Street Johannesburg for R5.5 million and a commercial building with retail outlets and offices in Durban central for R17 million.

“Market drivers of commercial and industrial auction properties right now include: strategic position, condition of the property in question, security, financial impairments (if any) such as outstanding rates and taxes, bonds etc, yield, income flow and quality of the tenant mix,” says Lazarus.     

He explains that tax allowances for commercial and industrial properties and continued lack of capacity in municipal planning departments which slows new approvals and new construction plus on-going bottlenecks in infrastructure delivery, rising building costs and problems in obtaining re-zonings - all spells out the growing demand for existing commercial and industrial auction property going forward into 2012.

This positive outlook is in spite of the fact that the economy is basically chugging along without any real fireworks. 

“For those with the foresight, correct advice and opportunity, it’s a market that represents major upside potential,” he says.  

In Claremont Cape Town, a warehousing/industrial property located in a prime area with a high foot count will be auctioned on 28 March.

Leased to three separate reliable lessees, one of which one is the display printing department of a national chain, the precinct is situated opposite Caxton Book Shop, close to Kenilworth Centre, Access Park and the Peninsula freeway system.

The property will be auctioned by and at Rawson Auctions at the head office in Newlands.

Tanya Jovanovski, franchise principal for Rawson Auctions in the Western Cape says the unit to be auctioned is 16/18 Warrington Road, Claremont. 

Rawson Auctions will auction the 1 297 square metre warehousing/industrial site in Claremont Cape Town on 28 March at the Rawson head office in Newlands.

The lettable area is 1 297 square metres and the buildings have a high street fronting visibility. 

Zoned for “light industrial”, retail operations are currently taking place on the Glosderry industrial site, says Jovanovski.

One current tenant operates a successful shoe factory shop and another lessee supplies schools with teaching materials. 

“We are expecting to achieve bids for the reserve price of R7.9 million, offers are welcome and will be considered,” says Jovanovski. 

The High St Auction Co will be auctioning 21 property lots with a combined value in excess of R150 million at Summer Place in Hyde Park in Johannesburg.

Nine Sasol petrol sites leased by Sasol and independently operated will whet any investor’s appetite when it comes to bidding.

The successful bidder is not only buying prime land but properties with solid leases with a leading South African brand in place.

This portfolio will be sold as individual lots, says Nick Pretorius from High St Auction Co.

Brits in the North West Province, a property located in the motor dealership district and close to the main arterial road is up for grabs.

It currently generates a current rental income of approximately R1 million and Sasol has a lease in place until May 2023.

Ifafi  property situated alongside Hartbeespoort Dam in the valley south of the Magaliesberg mountain range and 35km west of Pretoria has an annual rental income of R600 000.00 and a lease in place until February 2022

A property in Middelburg, a large farming and industrial town in Mpumalanga, conveniently located alongside a main route into the Kruger National Park currently generates a projected rental income of approximately R1 million annually and the lease is in place until the end of 2023.

Nylstroom, now known as Modimolle, is located near the southern edge of the Waterberg in the Limpopo Province.

Nine Sasol petrol sites leased by Sasol and independently operated will whet any investor’s appetite when it comes to bidding. The successful bidder is not only buying prime land but properties with solid leases with a leading South African brand in place. This portfolio will be sold as individual lots, says Nick Pretorius from High St Auction Co.

It is a medium sized town that focuses primarily on agriculture, as well as wildlife and tourism.

This property enjoys good passing traffic on Nelson Mandela Street and offers a current annual rental income of approximately R735 000.00 

The lease on this site expires in 2029.

In Piet Retief, an industrial town situated in the south eastern corner of Mpumalanga located on the N2, 100km from neighbouring towns of Vryheid, Pongola and Ermelo is a prime property generating an annual income of approximately R1.5 million.

The lease on this property is in place until February 2030.

A property in Pietersburg located on the N1 highway, which connects Pretoria through to Zimbabwe, has a lease in place until 2030 and the annual income is currently +/- R1.1 million.

In Steelpoort where global diversified mining group, Xstrata opened the Magareng Chrome Mine is a property worth buying with a lease in place until 2024 and current income of R1.15 million annually.

It is located on the R555 and Burgersfort is the nearest large town.

A property in Vanderbijl Park which currently generates an annual income of R420 000 with a lease in place until 2022 will be auctioned on 28 March.

If you fancy an annual income of R1.14 million and a lease in place until August 2022, then the eMalahleni property is situated on the Highveld of Mpumalanga is a must-buy.

While investors buying commercial properties with longer leases may have nothing to worry about, others may take comfort in the fact that commercial rentals will improve only in the third and fourth quarter of 2012

According to Org Geldenhuys, managing director of Abacus Divisions, despite pockets of excellence where certain sectors of the commercial property sector are performing well, the recovery of the economy during 2011 was slower than some people expected.

He notes that while disposable income has improved, the rising electricity costs, fuel and rates and taxes, could hamper the economy’s recovering and prompt an increase in business bankcrupties and unemployment.

Geldenhuys points out that too many “cash-strapped” landlords had, over the past two years, discounted rental prices just to “get some cash flow coming in”.

“It looks as though office vacancies are fairly stable but limited demand and a pressure on rental prices continues to present problems.”

Geldenhuys says in office properties, they are seeing that A grade buildings and green buildings continue to command decent rentals.

Most of the lower rental agreements struck by hard-pressed landlords have been to do with older buildings, or lower grade buildings, he says.

“While the commercial property market is still not out of the woods, we are seeing an increasing number of ‘pockets of excellence’, where some business parks, or buildings, are receiving good rentals, including being able to negotiate very reasonable escalations.”

Geldenhuys points out that too many “cash-strapped” landlords had, over the past two years, discounted rental prices just to “get some cash flow coming in”.

This had a detrimental effect on the market, including the portfolios of many property owners, as the banks essentially value buildings on what kind of rental income they command.

The cheaper property deals concluded in recent times will only start coming to end in the third and fourth quarter of this year, he says.

Landlords who signed these discounted leases had done so for short lease periods such as a one year lease.

This will have a positive impact on the market and it is possible that rental prices will be in more of an upwards curve at the end of the year, and into 2013, he adds. – Denise Mhlanga

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