THE commercial building sector has experienced further weakening, Statistics SA’s third-quarter building figures show.

FNB property market analyst Ewald Kellerman says commercial building activity weakened in the third quarter, which is “perhaps” not surprising, with returns under pressure once more this year and some oversupplies not yet eliminated.

According to Statistics SA, thirdquarter building figures in all three main commercial building categories showed sharp year-on-year declines in completions.

In terms of square metres completed, industrial space declined 42,5% year on year, retail space was down 42,2% and office space down 26,1%.

“This all means that the cumulative decline in completions in commercial building activity has been nothing short of spectacular; good news for a market needing to return to balance but bad news for the property development sector,” Mr Kellerman says.

The figures show that from its peak level in mid-2007, industrial buildings completed had by the six months to September shown a cumulative drop of 181,7%. The cumulative figure for retail space was down 152,9% from its 2008 peak, and the cumulative figure for office space was 181,7% down from its own 2008 peak.

But an examination of building plans passed suggests that actual building activity may pick up soon. The amount of square metres planned for retail space rose year on year by 32,2% in the third quarter; for industrial and warehouse space the figure was 22,3%; and for office space it was 15,8%.

“Of course, it remains to be seen whether such heightened planning translates into actual increases in building activity in the near term.

“The increase in plans passed is the lagged effect of a mini-recovery in total property returns last year, following the economic recovery after the 200809 recession,” Mr Kellerman says.

However, the Investment Property Databank (IPD) indicates this mini- recovery was short-lived, with total returns in all three major commercial property categories having receded again in the first half of this year compared with last year.

Vacancy rates are still believed to be significant, especially for office space.

The South African Property Owners Association’s (Sapoa’s) office vacancy survey for the third quarter estimated vacancies to be in double digits, at 10,2% on a national average basis — and still rising.

In the area of industrial property, Sapoa’s survey for the first half of this year showed a national average vacancy rate of 4,2%, and on a declining trend.

“Therefore, we would suggest that if commercial building activity is to see something of an overall pick-up in completions in the coming quarters, it would probably be driven by industrial property development, and perhaps some retail building activity improvement on the back of recently strong retail sales,” he says.

Office-sector building activity, however, is expected to remain weak.

“However, we would not expect fireworks in any of these segments, given signs of looming near-term economic growth pressure, as signalled by the Reserve Bank’s leading indicator, and given the recent renewed slowing in total returns of all three commercial property categories as estimated by the IPD,” Mr Kellerman says.

Source: Business Day