Jason Lee, Rawson Auctions’ legal expert and strategist, has absolutely no doubt that it will be channelled into commercial and industrial property.
 
“My reasoning here is simple,” said Lee.  “The barriers to entry in these fields are now high because the banks almost never give more than 60% bonds on commercial units- and insist that it be amortised over ten to twelve years.
 
“This effectively limits the participants in this field to those with available cash reserves which, in turn, ensures that prices are kept low through lack of competition.  Unbelievable opportunities for savvy investors with available resources are, therefore, now being created.”

Right now, says Lee, the rental returns on investments in commercial and industrial property are mostly at double digit levels and future capital appreciation will add to the value of these properties.
 
“Those investing at today’s low base levels could see the value of their premises increase significantly in the next five years. 

“Obviously, therefore, this type of property is currently giving a better return than that obtainable in most money markets or the residential buy-to-let market.”

In the current tight economic conditions, landlords have often had to accept ±20% cuts when renewing leases, says Lee.
 
“Industrial space previously rented at R25 to R30 per m² is now obtainable at R20 to R25 per m² - but it is encouraging to note that in most instances, the lower the initial rental, the higher the annual escalation clauses are pitched.  We have seen cases where space rented at low initial rates had had 10 to 15% escalation clauses – and many landlords are now able to peg the interest rates on their bank loans at close to the current low levels, enabling them to budget ahead very effectively over five to seven years.”
 
Asked if, in the ongoing tough trading conditions, there is not a greater danger of tenants failing in business and being unable to pay, Lee said that this can be avoided if a thorough due diligence exercise is carried out on the tenant before signing him on and the management of the lease is efficiently handled. 

“The due diligence of the tenant has now become as important, if not more important, than the property deal,” he said.

“In the current difficult conditions, it is still possible to maximise income and reduce running costs if you carry out such tasks as reviewing the replacement costs of the building and adjusting the insurance premium accordingly, renegotiating the property management fees or taking over the management yourself.  At the same time, it has to be said that, with building costs lower, now is a good time to improve premises with a view to obtaining higher rentals later.”