Promising outlook for inner-city investors

Posted On Wednesday, 28 July 2004 02:00 Published by eProp Commercial Property News
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Capitalisation rates for commercial properties have maintained a declining trend over several quarters. This indicates an increase in market values.

Michael LuscombeCapitalisation rates for commercial properties have maintained a declining trend over several quarters. This indicates an increase in market values.

Add to this competing investment alternatives that seem fully subscribed and it is unsurprising that the prices we raised in recent auctions of office blocks and retail buildings, even in previously depressed central business districts (CBDs), have been called benchmark prices for today's market.

Consistent positive economic indicators reflect real sustained growth in SA's economy, with gross domestic product exceeding previous projections of about 2,7% and now pushing to 3,5% or better.

International credit ratings for the economy are improving in almost every aspect and the RMB business confidence index has increased to a 15-year high.

All these elements, coupled with a very acceptable inflation rate of about 5% , should enable the Reserve Bank to hold prime interest rates at 13,5% for the rest of this year and at similar levels well into next year. This allows for more confidence for investors bent on making longer-term investment decisions such as buying directly into commercial mortar and bricks.

It is small wonder, then, that investment in commercial property has become more buoyant and continues to grow into the second quarter of this year.

A recent Financial Mail report on the Carlton Centre in Johannesburg's CBD, now owned by Transnet, bears this out. The commercial space has reopened with Pick 'n Pay as anchor tenant. The South African Revenue Service is also launching a regional service centre there, and Juta, Woolworths, Topics, Cash Crusaders, Panarotti's and Galaxy World have all shown interest.

Although Transnet occupies 65% of the office tower, other tenants such as lawyers, government departments, banks and Business Against Crime have taken up the rest and plans are afoot to reopen the hotel.

The same report indicates office investments in the city's CBD rose 4,5% last year. This was the first year positive capital growth was recorded in the city centre since a database was set up to monitor this aspect of property pricing in 1995.

All this is good news and as long as the rand's strength is tied to economic fundamentals we may be able ride the high oil prices. Also, government needs to exert its influence by prodding in the right quarters to keep wage demands at realistic levels. Then an acceptable rate of inflation may well be maintained. This should keep interest rates in check.

All these positive economic indicators are accompanied by increased consumer confidence brought on by what appears to be a fairly sustained increase in consumer spending. This is a boost for business, which should lead to further expansion and growth in the retail market. An increased demand for nonresidential property space could lead to further declines in capitalisation rates.

Commercial property is undervalued in Johannesburg, especially in the CBD and Braamfontein, where up to now there has been an oversupply. This applies to other CBDs in other cities throughout SA.

Now, at last, things certainly seem to bode well for return of a profitable investment scenario for those with interests in commercial property or who are interested in investing in commercial property.

Last modified on Wednesday, 14 May 2014 17:11

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