Want money? Buy commercial property

06 Mar 2012

Property investors looking for good returns should rather buy commercial property than residential property as investors achieve fewer returns. 

Property investors looking for good returns should rather buy commercial property than residential property as investors achieve fewer returns. This is all thanks to the wake of the economic recession that has seen residential properties being hard hit and in some cases, forced to sell at comprised prices.

This is all thanks to the wake of the economic recession that has seen residential properties being hard hit and in some cases, forced to sell at comprised prices.

Len Pears director of Quagga Property Brokers says the commercial and more so the industrial market has been least affected, making it a good investment for those looking for good returns.

Pears says buyers of commercial property need to know that when buying commercial or industrial property, one needs a far bigger cash input than residential property.

Most banks are also prepared to lend between 60 and 70 percent of the purchase price to qualified buyers.

“Buyers need to ensure they have liquid capital available in order to get into this market.”

He explains that the rental returns far outweigh the rental returns on residential properties and always have.

The rental return on residential property is around 4.5 percent while in commercial and industrial property the returns can be in the region of 8.5 percent to 10 percent.

As an example to buyers keen on entering the market now, he says certain industrial security parks have been far less affected.

These include the Prime Park in Diep River asking about R7 000 per square metre selling price and Westlake has also held its value very well.

Pears says the most sought-after properties by tenants are factories ranging from 150 square metres to 600 square metres.

“With the number of investors currently available in the market, this property segment is definitely set to continue its growth through 2012.”

He urges would-be investors looking for good rental return and capital gain return to speak to a property expert with at least 20 years experience and who has been able to see the market ups and downs before making any decisions.

Galetti Commercial and Industrial brokers report that while the recovery of the commercial market may be continuing at a slow pace they are quite busy and have recently sold the landmark property in the Cape Town central business district (CBD) – the Foretrust building.

Its new owners, Johannesburg Stock Exchange listed loan stock company, Vunani Property Investment Fund Limited purchased the property from Redefine International at a price of R249.5 million with a net yield of 11.1 percent.

The building is 91 percent let with the Department of Environmental Affairs and Tourism currently occupying approximately 22 000 square metres of the available area.

The department’s lease runs until November 2017, which combined with the property’s low vacancy level has made Foretrust a sound investment for the fund, according to Galetti.

Located between Harbour Place and Fleetway House, the Foretrust building offers a gross lettable allowance of 26 780 square metres over an erf size of 4 369 square metres.

Vunani Property Investment Fund Limited purchased the Foretrust property from Redefine International at a price of R249.5 million with a net yield of 11.1 percent.

It has 151 parking bays on site, making it the largest property in Vunani’s portfolio.

Rob Kane, chief executive at Vunani says the acquisition is in line with Vunani’s strategy of acquiring yield enhancing, well located, quality assets with stable income streams.

Galetti has also successfully negotiated two separate property deals for new Virgin Active branches.

Health freaks will soon be sweating it out at the Alice Lane development currently under construction in Sandton central in Johannesburg.

This is a joint venture between Abland and Standard Bank.

Galetti says the 3 700 square metre Virgin Active Classic will service the needs of people living and working in the Sandton CBD.

The Alice Lane development will feature office and retail space in an attractive, pedestrian-friendly environment with a strong focus on greenery and security.

The property also has easy access to the Sandton Gautrain station, major highways and other modes of transport.

The second Virgin Active branch with an agreement worth R110 million is due to open in the fourth quarter of this year in Sandown Centre, which is a new lifestyle centre under construction. 

Located at a gateway site in Sandown near Parklands, Cape Town, it will cater to a number of surrounding communities.

Galetti has also concluded the planned movement of Makro into new premises in the Cape Gate precinct of Brackenfell, Cape Town.

Work has already begun on site and the new store is due to open in the latter half of this year and the total value of this deal is approximately R340 million.

On property acquisitions and investments,Galetti broker Mark  Gedrych says investors and buyers consider location, purchase yield, tenant strength and length of leases before buying.

“The tenant strength and purchase yield play more of a factor than the location of the property at the moment,” he says.

As an example, he says not only is the Foretrust building a solid investment property, it is also located in an area where there are major property developments and growth in the pipeline. – Denise Mhlanga

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