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SA property returns hit 10-year high

Posted On Friday, 08 April 2005 02:00 Published by eProp Commercial Property News
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Total returns for SA commercial property accelerated to 23.4% in 2004, up from 15.3% in 2003, breaking the previous record of 17.4% set in 1997

Property-Housing-ResidentialSouth African commercial property delivered the highest return seen in the last ten years in 2004.

Total returns for South African commercial property accelerated to 23.4% in 2004, up from 15.3% in 2003, breaking the previous record of 17.4% set in 1997, according to the latest Sapoa/IPD South African Property Index.

In the process property as an asset class outperformed most others with the exception of equities, which did slightly better, year on year. The return on bonds came a distant third at 14.1% in 2004, compared to property's 23.4% and 25% for equities.

Over the ten year period property performance has ranked between that of bonds and equities, although the position of these asset classes has been reversed. Bond returns annualised at 18.3% per year, are comfortably ahead of those on property and equities, at 13.4% and 10.6% per year respectively.

This performance hierarchy has also been maintained over five years, although property and bonds are tied for first over the three-year period ending 2004.

Commenting on the results, Simon Fairchild, IPD UK Director, says that this was another fantastic year for commercial property in South Africa and on a risk adjusted basis direct property is certainly holding its own against the other asset classes. Fairchild further believes that the continued upswing in the South African economy is also being felt in the property sector, which is now starting to deliver results.

Although the total return at the all property level in South Africa in 2004 was fairly evenly distributed between capital growth and income return of 11.7% and 10.6% respectively; the main contributor to the improvement in total return was the double-digit capital growth, which rose sharply from 4.3% in 2003. This was predominantly due to the decrease in the net income yield from 9.8% to 9.5%. Income returns remained largely unchanged at 10.6% (2003: 10.5%).  The rate of net income growth accelerated to 7.9% in 2004, from 7.1% a year earlier, as the vacancy rate fell to 7.8% in 2004, from 10.7% a year earlier.

The improvement in performance at the all property level was felt across all sectors of the market with retail, office and industrial all delivering ten-year record returns in 2004.

In 2004, Retail properties out-performed Offices for the fourth year in succession. Retails total return improved to 26.1% in 2004, up from 17.3% in 2003. The capital growth rate more than doubled from 7.0% in 2003 to 15.0% in 2004 with net income yields falling slightly.  Strong net income growth of 11.4% (2003: 11.2%) was supported by a further decline in the vacancy rate, from 6.0% at the end of 2003 to 4.7% at the end of 2004.

The continued recovery in offices gathered momentum in 2004. After posting total returns of 5.0% in 2002 and 8.9% in 2003, offices' total return almost doubled to 16.7% in 2004. This turn around was attributed to the capital growth rate being positive for the first time in four years, at 5.5%. However, net income growth was slightly subdued at 0.2%, as the vacancy rate remained substantially high, at 17.0%.

Industrial properties showed a strong total return of 24.4% in 2004, compared to 17.7% in 2003. In this sector the capital growth rate almost trebled to 9.7% on the back of decreasing net income yields and the income return of 13.6% remained identical to the previous year.

On a regional level, Western Cape retails delivered the top total return in 2004, at 36.5%, well ahead of Kwazulu-Natal and Gauteng retails at 28.4% and 22.3% respectively. This strong performance was helped by significant capital value growth, static vacancies from the previous year and good income growth. In the office sector, the Western Cape was also the best performer, delivering a total return of 17.8% which was better than Gauteng's total return of 16.8% and Kwazulu-Natal's total return of 10.8%.

Last modified on Saturday, 10 May 2014 12:46

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