The continued rise of capitalisation rates in the property market is worrying property services company Rode.

The group says in its second-quarter review conditions in the nonresidential property market remained constrained in the second quarter. Higher vacancies are still creating pressure, particularly on office rentals.

'Particularly worrying though is the continuous upward trend, on a national basis, of capitalisation rates for all property types,' says the Rode review.

Capitalisation rates, the property equivalent of the forward earnings yields of equity, reflect investors' perceptions.

'As such, higher capitalisation rates mean lower market values,' says the report.

Rode's Dirk de Vynck says capitalisation rates for regional shopping centres in Cape Town and the Witwatersrand have experienced big hikes.

The upward surge in Durban's regional shopping centre capitalisation rates since the middle of last year could be the result of the completion of the Gateway shopping centre. However, this rise should be a temporary phenomenon, brought on by a temporary oversupply of regional shopping space.

'In time, the increase in consumer demand should mop up the oversupply (of retail space),' says De Vynck.

The review also touches on the listed property sector of the JSE Securities Exchange SA, saying property unit trusts have, during the second quarter of this year, recovered some of the losses incurred a few months ago.

However, the property loan stock market is still in the doldrums.

Business Day