With building costs increasing as a result of inflation and
development costs in the commercial market rising year on year, property
investors are realising that replacement costs can be as much as double that of
existing buildings, which makes buying the latter very appealing.
Raad says mixed-use developments are increasingly emerging as viable projects for investor and tenant, offering an ideal solution to individuals and families looking to rent a home and avoid the high cost of transportation.This is according to Norman Raad, CEO of Broll Auctions and
Sales, who says looking at the year in review auction activity has been brisk
with the company’s most recent auction well attended by some 50 registered
bidders and the office sector alone seeing a total of 12 092sqm sold in
Durban, 3 453sqm in Ermelo, 675sqm of office space in Pretoria and 748sqm
of commercial space in Pretoria acquired for use by a religious group.
“Encouragingly, in 2015 sellers have realised that their
expectations need to be aligned with buyers. Over the last quarter in
particular we’ve seen sellers adjust to the current market and the year ahead
promises to be an active period for commercial auctions.
“The market is extremely active, with many investors looking
for opportunity and value and we expect a lot more property coming to market in
2016.
“Despite the likelihood of interest rate hikes we believe a
safe place to park capital is in bricks and mortar, as has always been the
case, so we expect that the interest rate will not deter buyers – they will simply
adjust their pricing.”
Raad says the market features a number of key highlights.
“Over the last year there has been huge growth in the listed sector, which has
outperformed the equity market. Although there could potentially be a slowdown
on this side, the private market could and should remain buoyant, with a great
deal more players in this space.
“There remains a huge demand for retail centres, while
residential blocks are in demand for the buy-to-let model and being snapped up
by eager investors.
“We are upbeat regarding the year ahead, as we perceive a
number of opportunities in the market, which others may view as challenges.”
Raad says while there has been a major drive for the big
corporates, legal and accounting firms to consolidate and build new commercial
head offices, this has obviously left huge potential vacancies in the older
buildings. “While this may on the surface appear negative news for the brokers,
therein lies the movement in the market for deals to be done. Brokers who are
on the ground, in touch with the market and understand the tenants’
requirements will be ahead of the game.”
He says while vacancies are never good, they will always
exist in an evolving economy and city. “Change is positive, but the problem the
South African property market faces is that the new buildings being developed
are more of a consolidation of larger companies into one building and under one
roof.
“These new builds may offer more space efficiency and at a
reduced operating expense, but the vacant building space created in their wake
will increase over time.
“However, the bulk of these buildings are owned by listed
funds which can afford the short-term vacancy factor and may hold out to
achieve a market rental or they may decide to redevelop the older properties.
Alternatively, for those funds who cannot afford the luxury of a building which
stands vacant, a below market rental can be negotiated. An over-supply of
commercial space will always create opportunities and also provide tenants with
bargaining power.”
Raad says mixed-use developments are increasingly emerging
as viable projects for investor and tenant, offering an ideal solution to
individuals and families looking to rent a home and avoid the high cost of
transportation.
“These have been well received as staff and employers who
historically were forced to travel hours to get to work now rather choose to
save on these costs and pay a little more for rent in convenient locations
closer to business centres. This has seen a move away from outlying towns which
lack not only easy access to the workplace but also all the amenities of the
cities. The commercial or retail component of such developments can provide a
solid income stream for landlords and attractive options for businesses.”
He adds that now more than ever, commercial brokers need to
know every square metre in the market or area in which they operate. “In
the current market companies are looking for brokers who can add value and they
will choose the best and most cost effective way to do deals. This is where
expert advice from a broker who fully understands the market and can identify
the next demand for space has every opportunity to become valuable to a client,
whether a corporate or a listed fund.
“A recent trend has seen a move by many large organisations
to appoint corporate real estate advisors whose responsibility is to advise and
consult to these companies, contracted to make decisions regarding rentals,
sales and property management.”
