Ireland pips SA
But SA commercial property still offers plenty of upside
THOUGH SOUTH AFRICA lost its position as the world’s best performing commercial property market to Ireland last year – on the back of a noticeable dip in returns from shopping centres – we’re likely to be the place to be for international investors over the next two years.
That sentiment was raised last week at the release of Investment Property Databank’s (IPD) 2006 results for SA. IPD is a British-based research company that measures the performance of commercial property markets in 21 countries.
SA’s IPD index, with a capital value of R111bn, delivered total returns of 26,7% last year, down from its all-time high of 30,1% achieved in 2005. Nevertheless, last year’s performance was the second highest return achieved in IPD SA’s 12-year history.
SA’s return of 26,7% was marginally lower than the 27,2% recorded last year by IPD in Ireland. In the IPD index results published so far for last year, Canada came in third with total returns of 18,6%, followed by Britain (18,1%), Denmark (17,8%) and Norway (17,6%).
But Simon Fairchild, director of IPD in Britain, says there’s still plenty of steam left in SA’s commercial property market. He says it’s likely that SA could regain its top ranking this year and in 2008 as international investors increasingly pour money into SA property.
After all, property investors are generally more interested in yield (income) than in capital growth.
In that regard, SA is still streets ahead of most of its international counterparts, offering an average income return of 9,2% in 2006 compared to between 5% and 7% in most European countries, Britain, the United States and Australia.
As Fairchild says: “Global investors are increasingly chasing income and SA still offers higher yields than any other international market included in IPD’s index.” Besides SA, Fairchild places his bets on Sweden and Switzerland as countries most likely to outperform over the next two years.
In terms of performance of different SA sectors, it seems that the long-awaited retail slowdown has finally started to kick in on the back of last year’s four consecutive interest rate hikes. Returns on shopping centres – which have long been SA’s top performers – dropped from 32,6% in 2005 to 27,4% last year, while industrial came out tops with 31,1% (33,1%).
Offices disappointed with a repeat performance of 24,5%. The industry expected office returns to accelerate now that vacancies have dropped to a historically low overall level of 7%, down from 19% in 2001.
More boom times ahead
for SA commercial property.