Commercial real estate in South Africa has shown a 4,6% total return for the six months to June this year according to the SAPOA/IPD South Africa Biannual Property Indicator.
The report claims that in the first half of this year there has been “robust income returns of 4,4%” even though capital growth has remained flat at 20 basis points. The survey says that marginal growth was an improvement on last year’s -0,7% - South Africa’s only recorded period of capital depreciation since 2007.
The report claims that the commercial real estate is coming out of a cyclical trough that started in the first half of 2009 but warns that the signals are mixed because while net income grew, vacancies also increased and yields dropped by 13 basis points to 8,5%.
John Cleland, head of research at IPD South Africa says the real driver of performance for investors in the first six months of this year has been income. “Investors are focusing on the preservation and growth of income in the face of muted capital growth,” he says.
He says the retail sector is delivering flat capital growth and while a boost in tourism during the 2010 World Cup helped high profile shopping centres, net income growth remained relatively low.
“However, sharp increases in operating costs, which rose by 12,2% during the first six months of the year have dampened the recovery process,” says Cleland.
In the office rental market Cleland says that there has been capital growth of 1,3% in addition to a 6% net income growth and these figures indicate that there has been an improvement in the office rental sector since its -2,6% decline in 2009.
“High vacancies suggest there is an over-supply of available office space and it is only in the inner city that the office market has managed to reduce the rising level of vacancies. This resulted in strong average capital growth for offices in the inner city segment,” he says.
Cleland says the industrial property market continues to struggle because of the strong Rand and declining business activity and confidence. Capital growth in the industrial property market over the first half of this year provided negative returns of -1,1% even though vacancies decreased from 6% to 5,7%.
“Net income growth outstripped operating cost growth allowing owners of industrial property to record some profits during the period,” he says.
On a positive note, Cleland says that investment trends in smaller shopping centres of between 50,000sqm and 100,000sqm increased during the first six months of this year, revealing increasing confidence levels in new retail shopping centres throughout the country. – Paddy Hartdegen
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