Ire­land pips SA

But SA com­mer­cial prop­erty still of­fers plenty of up­side

Finweek English Edition - - Property - JOAN MULLER

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.

Si­mon Fairchild

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