Offices are currently the least affected among all the commercial property segments in terms of potential oversupply.
So says Ben Kodisang, managing director of Old Mutual Investment Group Property Investments (OMIGPI), but adds the caveat that this sector will feel the impact of increased corporate defaults and curtailed expansion plans.
"The office sector has experienced a period of record low vacancies but in certain nodes speculative developments have led to an overhang of Pioneer and A-grade space.
"Given the relative resilience of the SA financial institutions we expect demand to taper off but do not anticipate substantial vacancy increases as was seen in 2002," he says.
"With retail we predict that household spending will recover towards the end of 2009, but consumers could still increase savings in order to rebuild their buffers.
"While foot count and parking numbers are marginally down, there has been an increase in spend per head. This is an indication that shoppers prefer those centres that enable them to consolidate their purchases.
Kodisang says with rent-to-sales ratios on the increase and declining trading densities, "we are especially attentive of those tenants that are underperforming at a centre as well as category level".
"In the industrial segment, we expect manufacturing and warehousing growth to decelerate as businesses try to reduce their current inventories before ordering or producing more. Due to its shorter gestation period and sensitivity to the economic cycle, industrial property supply will adapt quickly but the segment will feel the impact of the slowdown faster than either retail or offices," he says.
Despite his cautiously hopeful view of the impact of the global economic crisis on SA, Kodisang forecasts 2009 to be a tougher year than initially anticipated in 2008. "SA is not isolated and the impact is real and only starting. The consensus, globally and here in SA, is that we should prepare for a V-shaped recovery and we should look ahead to the cyclical upswing.
"From a property perspective, the absorption of new supply is under threat and while we expect economic growth to recover in late 2009 or early 2010, we are weary of a supply overhang in the industrial and retail sectors.
He says Europe's "Big Five" – Germany, The UK, Spain, France and Italy – will be returning to popularity as investors seek the security of mature markets, but had some good news regarding SA.
"It continues to provide real growth in a world where many developing markets are experiencing contractions." - Eugene Brink
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