May 2014 Property Market Update
Category Commercial Property News
Retail Sector
-
There is currently 2 million square metres of retail space under construction in South Africa of which 120,000m² accounts for the Mall of Africa which is being developed in Johannesburg.
-
Annenberg Property Group recently contributed to this sector in developing a 5,361m² shopping centre opposite Du Noon near Milnerton in Cape Town which is known as The Stables. The development is anchored by Shoprite and is opening on 29th May.
-
While this sector appears to be oversupplied, opportunities exist in the former regulated townships. The Stables is a case in point, which is situated across the road from Du Noon.
-
More international brands are entering the South African retail market such as Burger King , H & M, Cotton On to name a few.
-
According to Investment Property Databank (IPD), the retail sector has been the highest performing property sector in recent years, returning 13,4%, 12% and 18,8% growth over the past 3, 5 and 10 years respectively
-
While there has been a slowdown in retail sales since the beginning of the year, due largely to the recent increase in interest rates and strikes, the retail sector has been resilient over the past 3 years as reflected by IPD despite the stagnant economic conditions that are evident worldwide.
-
We are of the opinion that the reason the retail sector has done relatively well is that we have a bloated civil service that are well paid and prefer spending money on consumer goods rather than saving and investing their incomes.
Industrial Sector
-
Despite the weakening rand, the manufacturing sector struggles to compete with the Asian Tigers as our labour costs and productivity output cannot match theirs.
-
This coupled with the slow first world economies, particularly the Eurozone which we rely on as a major trading partner, exacerbates low manufacturing output. Strike action also has had a negative influence on output.
-
Electricity costs have seen a number of factories that are heavily reliant on power close down eg foundries.
-
Overall manufacturing has decreased over the past 3 years. In 2011 it was -2,7%, 2012 it was -2,4% and in 2013 it was -1,3%.
-
As a result, most of our inquiries are for warehousing space.
-
In the Western Cape, industrial land is in short supply and expensive relative to Gauteng. This has seen a trend in upgrading older buildings in established industrial areas.
-
The average rental for existing buildings is around R35m² with newly built space having to achieve R55m² gross. Escalations are 8% p.a. compounded
-
Annenberg Property Group has developed an industrial township just off the N2 at the Firgrove/ Macassar off ramp adjacent to Denel.
-
It is a security park known as Firgrove Industrial Estate and land can be purchased from R750m² excluding VAT.
-
Alternatively Annenberg Property Group are willing to develop to suit tenants requirements or develop a turnkey building for an owner/ occupier.
-
Firgrove Industrial Estate is the only secure park in the Western Cape that can offer a site large enough to accommodate a 50,000m² warehouse.
Office Sector
-
With a number of newly built office blocks having been recently completed in and around Portside, Old Mutual’s flagship in the CBD, there is an oversupply of AAA space in the area.
-
This has had an effect on A-Grade accommodation rentals in buildings, such as Triangle House (formerly Safmarine House) where one can secure space at R80m² gross. There is plenty of B-Grade space available at highly competitive rentals as well.
-
Century City has performed well with a low vacancy factor of 2% but a further 35,000m² is coming on stream during the course of this year which is a fair amount of space that needs to be absorbed. Gross rentals vary between R120 – R170m².
-
Space is slowly being mopped up in the Tyger Valley area which has seen some new developments recently being completed and in the course of construction.
-
Annenberg Property Group is developing the Panorama Healthcare Centre next to the Panorama Mediclinic in Parow.
-
Limited retail space is on offer at R220m² gross with the development due for completion in June 2015.
-
Office space in the Southern Suburbs is in short supply and we are finding it difficult to accommodate tenants that are looking south of Claremont.
Investment Sector
-
There is a plethora of investors but very little on offer, particularly in the Western Cape.
-
As a result, yields remain firm despite an increase in interest rates.
-
Yields range from between 8% and 9% for a prime retail or commercial property investments increasing to 10% in the case of an average risk investment property.
Author: Dudley Annenberg
