Mixed signals as managers pin hopes on an economic revival.

Posted On Wednesday, 19 February 2003 10:01 Published by eProp Commercial Property News
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Group sees massive scope for growth in listed sector, writes David Jackson.

James TempletonTOUGH trading conditions in the commercial property market and encouraging performances in the listed property sector have provided mixed blessings for property managers.

While investment in property remains an attractive option in a volatile domestic and international economic climate, there is an increasing realisation that profitable investment requires active asset management if returns on outlay are to realise their maximum potential.

Outsourcing continues to gain momentum, a key issue being whether owners should delegate property management to professionals or manage their portfolios themselves.

These developments come against the backdrop of a continuing oversupply of office space generally and the revival of interest in refurbished buildings in some of the country's central business districts.

The quality of customer service levels is becoming a critical differentiator. Another trend is for asset management to be separated clearly from the property management function.

There has also been a blurring of the lines between what was traditionally property management and what is now seen as facilities management, particularly with regard to softer services and technical support services.

Bruce Kerswill, MD of Spire Property Services Group, says an improvement in the SA economy during 2003 should lend support to the commercial property market by the end of the year.

If the economy grows at 3,5% and interest rates come down during the year as predicted, property companies should see vacancy levels declining and rentals increasing significantly during 2004, he says.

'While conditions are tough in the property market right now, prices appear to be firming in anticipation of good performances once the sector's recovery is under way.'

Norbert Sasse, of Investec Property group, says there has been a robust demand for space in the industrial property sector, believed to be export-driven on the back of the weak rand.

This dynamic could change to some degree, as the rand has strengthened, he says.

'We have seen a number of foreign companies coming into the country looking for sizeable chunks of space of 10000m² and more.'

Sasse believes that if interest rates come down to the levels at which they were in AugustSeptember 2001, and remain low for a sustained period, it may provide the impetus for more institutional supply of stock, with some of the bigger institutions converting their physical properties into listed vehicles.

'We believe there is massive scope for growth in the listed sector over the next couple of years.'

Association of Property Unit Trusts chairman John Rainier says that despite negative predictions, a weak global equity market and firming local bond yields resulted in the property unit trust (PUT) sector achieving pre-tax total returns of 20,9%, outperforming the all share index's (Alsi) total return of -7,9%.

PUTs delivered an average dividend yield of 13,9% and capital appreciation of 7% in 2002. By comparison, the Alsi showed an 11,1% decline over the year.

He says the performance of PUTs over the past year has further accentuated their impressive performance over three and five years, with total returns of 40,7% (13,6% a year) over three years and 81% (16,2% a year) over five years. This is in comparison to the Alsi at 17,1% (5,7% a year) over three years and 63,4% (12,9% a year) over five years.

Barnard Jacobs Mellet property analyst  says: 'If global growth prospects recover later this year it will assist the local economy, which will then flow through to the property market in the form of reduced vacancies, eventually strengthening rentals, which should aid growth in distributions from the property stocks.

'If, however, the global markets do not recover, and war in the Middle East starts and continues for some time, then we are likely to see safe-haven assets such as property outperform other asset classes for an extended time-frame,' says Templeton.

Last modified on Friday, 09 May 2014 09:54

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