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Taking the long view

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Now is the time to buy offices and industrials

The start of 2018 may have been a roller-coaster ride for South Africa’s economy and its people, but astute commercial property investors can be assured the time is also right for investment in a number of sectors.

Property in the office sector, for example, is ripe for the picking. Even though the short-term outlook for Cape Town’s office sector is currently dull, Rode & Associates’ Erwin Rode believes now is the best time to invest.

“Office properties in all major cities are inexpensive at present, although the short-term outlook is rather pedestrian. However, property investors are supposed to take a long view, so it is now a good time to buy office properties.”

Industrial property is also inexpensive at present, so it’s also a good time to invest in this sector.

As for shopping centres, Rode says: “It’s difficult to generalise about shopping centres, but in many cases the market has been saturated.

Over the past few years there has been a heavier weighting towards retail assets compared to office and industrial assets, and while some retailers reported disappointing results for the last quarter of 2017, Broll Property Group says others, such as Mr Price, Truworths and The Foschini Group, reported excellent sales growth figures. This resilience in retail lends some weight to the retail property sector.

The industrial sector, however, faces headwinds due to rapid facility obsolescence as the demand for tailor-made sites increases.

“Technology has enabled sophisticated logistics and changed the design of distribution warehouses, particularly those serving the retail industry. For example, online shopping vendors require specialised distribution warehouses, often served by robotic stock pickers, all with the aim of faster delivery.”

Overall, Broll says the South African business environment is “challenging and tough”, but one needs to remember that 60 million South Africans depend on the various property sectors for all manner of goods and services.

“With this in mind there are definitely opportunities for tenants seeking favourable deals as well as for investors looking for a property investment with good returns. There are still incredible deals out there – one just has to look harder and negotiate smarter.”

Sean Paul, executive director of Spire Property Management, agrees now is a good time to invest in commercial property, saying optimism has returned to the country. “Having a new leader with business-related background can only have benefits.

“The same fundamentals are in play but political uncertainty can make things riskier. Once we have stability back it makes property that much more appealing.  

“Property remains a great and relatively stable investment over the long term.  It is not massively volatile – especially if you are invested in solid and desirable areas – so the stability remains a great attraction for investors.”

However, there’s the matter of the VAT increase announced in last week’s Budget speech, which will push up rents by an extra percent, Paul says.

Richard Gray, Harcourts Africa chief executive, agrees, saying property transactions, like high-value commercial properties or development investments, may feel the increase “far more than other sectors of the market”.

For Rode, the biggest impact of the 2018 Budget on commercial property is the government’s intention to sell some of its properties. This, with permission given to the Department of Public Works to sign leases longer than three years, will make it possible for black entrepreneurs to find finance to buy some of these properties. 

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