Rising vacancies at commercial properties don’t necessarily mean declining prices as long as properties are well positioned.

Auction Alliance CEO, Rael Levitt, says retail properties with blue chip tenants are attracting extremely high prices and even if some line shops are vacant, investors tend to focus on the strength of the anchor tenants.

“What we have not seen at all in South Africa is distressed portfolios of shopping centres hitting the market. There have been a couple of well-let shopping centres which have come under the auctioneer’s gavel, but these are because of collapsing holding companies, not because the underlying property investment is bad.”

He says while trading conditions are tough, portfolios with bad covenants are going to be weak for a long time, but for those with good property fundamentals, we are seeing the highest prices being paid in years.

“Recent sales are showing that well-let and well-positioned commercial property is attracting a surge in buyer demand while vacant property in marginal areas is attracting no demand at all.”

He says at one stage when the property market was growing aggressively, any property was considered good, “but we are now back to the 1990s mind-set where a two-tier property market is forming”. “We’re back to an environment where experienced property investors and developers, who have access to funding, are snapping up prime commercial properties like never before. We are now seeing the old familiar faces on our auction floors and they are timing the market well by climbing in right now.”

As an example Levitt points to recent sales concluded by his company, where well-tenanted neighbourhood shopping centres have been selling at single digit yields, sometimes below 8%. “Recently in Durbanville, Pretoria and Johannesburg we have been shooting the lights out with well-let centres or commercial properties situated in high demand areas. It is quite strange that in the midst of a slow economic recovery that buyers are so aggressive on pricing, but many investors are now chasing yields with appreciating annual rentals.

“There seems to be a view that the retail sector will lead the commercial property market into a recovery and our sales around the country reveal that it is indeed retail properties showing the greatest demand and achieving the highest prices. After that it is industrial property, which in South Africa tends to follow the retail sector.

“The office market definitely seems a little weaker and is lagging both retail and industrial. We are finding it difficult to move B- and C-Grade offices, particularly those situated in older areas no longer deemed popular. There is still strong demand for office conversions in the inner cities of Pretoria, Cape Town and Johannesburg and these specific properties have been attracting high market demand.”

This trend was recently confirmed at the SAPOA/IPD conference in Cape Town where figures were quoted that showed that the retail property sector was bound to recover in approximately 2-3 years whilst the industrial and office sectors would take about 6-7 years to recover.

He says certain nodes, situated close to airports, stadiums, transportation hubs and other state capital investments are also attracting strong demand. “Phenomenal prices are being reached in Rosebank, which is booming due to the Gautrain launch and a massive capital injection into the area.”

An embodiment of this trend is the recent launch of the Lanseria Corporate Estate alongside the airport.

The brand new 90-hectare corporate estate which includes over 160 stands zoned for industrial purposes, including office and warehousing, is set to meet the needs of investors and industrial business owners who want a permanent stake in one of Gauteng’s fastest growing nodes, says Jürgen Erhart of Efcon Capital.

Erhart says the new estate will also contribute to the economic success of the area. “The economic benefits of the estate include up to 19,000 jobs during construction phase as well as an estimated 11,000 direct and indirect permanent jobs created post-completion of the estate”.

“The estate represents a R200m investment in basic infrastructure, combined with over R2bn (in present value terms) in new investment expected over the next seven years,” he says.

Lanseria International Airport – Gauteng’s second largest international airport – served just under 500,000 passengers in 2007 and this year is anticipated to have over 1 million passengers travel through it. The airport is expected to facilitate 4 million passengers by 2017.

Simon Mills of Property Logic points out that government’s Gauteng Growth and Development Strategy, with its provincial and local government support, further enhances prospects for the area.

Mills explains that research has confirmed demand for light industrial, offices and showroom space, with consideration for some hotel and retail space to serve the needs of travellers and residents. “The area’s tourism potential is spurred by the neighbouring Cradle of Humankind World Heritage Site,” he says.

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