Demand for commercial property on the increase

Posted On Tuesday, 23 November 2004 02:00 Published by
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Fixed property becoming highly sought after by private investors

23 Nov 2004 :
The decline in interest rates over the past few years, coupled with attractive yields experienced in the listed property sector, has seen fixed property become highly sought after by private investors and funds alike, says Colin Douglas, an investment broker for Pam Golding Commercial (PGC).

Douglas, who recently joined PGC, has considerable experience in the commercial property sector in Gauteng and the Western Cape.
"These factors, together with an economy that has shown steady growth coupled with heightened business confidence, have put capitalisation rates under significant pressure," he says.  "The most sought after investment grade real estate in the property market is a single tenant, and a 5-10 year industrial lease - preferably fully repairing.

"Owners of such property would do well to consider increasing their exposure to commercial property investments over the next 12 to 18 months as the cycle turns in favour of commercial property. This trend is expected to be further boosted by increased output in the manufacturing sector, as this will in turn result in an increase in service businesses requiring expanded premises to process the sales and support sectors of the economy.

Douglas says that while interest rates are maintaining their current levels, and are possibly even heading still downwards, it remains to be seen at what point a high oil price will filter into the economy in the form of inflation, and to what extent and when this will impact on interest rates.

In addition, the many conversions of commercial buildings to residential apartments are already having an impact on office vacancies, and this is starting to put upward pressure on rentals. Investors and occupiers of commercial and industrial space should consider these factors when making property decisions, he says.

The growing trend in recent years towards CBD's becoming a lifestyle option by combining the aspects of home, work and play is impacting on the demand for commercial property.  "The more popular an area is to live in, the more likely it will attract entrepreneurs and a variety of lifestyle operators such as restaurants and convenience shops.  In Gauteng the return of
businesses to Johannesburg's traditional CBD represents a significant turning point in its life cycle. In one instance a well-known South African IT company has made plans to relocate a large department back to Johannesburg's CBD due to its newly built offices being difficult to access on a 24/7 basis by the staff required to work outside of the standard 8 to 5 working hours," says Douglas. Such staff would quite possibly be purchasers
of CBD apartments.

In terms of high density living, Melrose Arch in Johannesburg was launched as a ground-breaking product with the additional advantage of being a secure precinct allowing inhabitants to enjoy the live/work/play lifestyle, and although viewed with skepticism initially, has proven hugely successful.

Work began on the super basements in 1998 with the first tenants -
commercial occupants - moving in towards the end of 2001.  Apartments have since become hugely popular, and are currently selling at prices ranging from R2 million to R7.5 million.

Says Douglas: "Since 2001 Cape Town's CBD has being substantially cleaned up and made more attractive, mostly through the efforts of The Cape Town Partnership, and property owners in the area. With commercial space showing relatively large vacancies at that time, it became apparent that an unlet CBD building's value lay in its residential and not commercial use.Apart from the CBD, Green Point's De Waterkant precinct as well as the Kloof Street area in Gardens are good examples of this trend. These  conversions, and new apartment complexes, continue to be launched and marketed to an apparently insatiable public. One wonders at what point this phenomenon will taper off."

"We are experiencing an upturn in enquiries for commercial space, both by owner occupiers as well as tenants, and anticipate a shortage of quality commercial space followed by a rise in commercial letting rates during the next 12 to 18 months, this shortage being exacerbated by commercial to residential conversions," he says.


Publisher: Cape Business News
Source: Cape Business News

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