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Retail property sector’s e-commerce challenge

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The entire market is heading in a weaker direction

Half-yearly data from global investment index and analysis firm MSCI has revealed key macro-commercial property trends in the South African property market.

These, says FNB property economist John Loos, include:

* In 2018, commercial property could return to single-digit total returns for the first time since 2009: total half-yearly returns reached a post-2008 recession high of 9.5% in the first half of 2013.

“From there onwards, however, we saw a broad weakening to 4.7% by the first half of 2018, the lowest total return estimate since the first half of 2011,” Loos says.

* Retail property may no longer be the “outperformer” in terms of capital growth. Although it outpaced both office and industrial for the past nine years, industrial property was the top performer of the three major property sectors in the first half of 2018.

Loos says the emergence of e-commerce has been cited as a key challenge to the retail property sector.

“However, all three major property sectors have been heading in a weaker direction in recent years.

“We believe the key threat for all of them currently is multi-year economic stagnation.

“But retail has the additional challenge of experiencing a far greater affordability deterioration over the past two decades.”

* Cape Town’s “fundamentals” still appear the most healthy of South Africa’s three major cities. The All Property vacancy rate for Cape Town is noticeably lower than either Joburg or Durban.

Cape Town’s rate is 2.3% – and still declining as at the first half of this year, compared with Durban’s 4.7%, and Joburg’s 7.2%.

Joburg has seen a sharp vacancy increase of late.


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