South African Property Overview

The Global Picture: Outlook Gets Brighter

The global economy slowly moved into recovery in the third quarter of 2009 assisted by unprecedented fiscal and monetary policy stimulus.

However, while forecasts suggest a strengthening of economic growth prospects, the pace of economic growth remains uncertain and investor confidence is only gradually returning.

Meanwhile, South Africa remains one of the best performing global property markets with an overall property return of 8.7% achieved for 2009. Many countries struggled to return to positive figures in 2009.

The global recession and related credit crunch has had a negative impact on property related investment and the demand for space across the African continent.

Yet various opportunities are being created in African property markets driven by:

• telecommunications
• mineral extraction
• energy sectors

To some degree, the property market in Africa was shielded from the recessionary environment experienced in highly industrialised countries.

The Office Sector: The Struggle Continues

The South African office sector is possibly the most vulnerable to present economic conditions and will most likely be the last sector to enter the recovery phase.

There are indications that the supply of new office space is levelling out and that the vacancy rates could start to decline during the course of 2010. This should result in a stabilisation of rentals and yields during 2010.

Office building owners continue to focus on retaining tenants through various incentives but this is not proving to be an easy task with the vacant stock available in the market.

Moreover, property owners are dealing with rising operating costs driven by rising electricity costs, which are affecting the value of investments.

The Retail Sector: Retail Therapy Proves a Winner

The retail sector as a whole remains under pressure from highly indebted households and weak consumption expenditure. Retail spending is recovering though, which has translated into improvements for certain retail sub-sectors.

Looking at centres themselves, anecdotal evidence suggests that regional centres continue to perform well while neighbourhood centres are taking the most strain.

Nonetheless, fundamentals in the retail property sector are improving with the supply pipeline slowing considerably. It is also the property sector that should be the first to enter the recovery phase.

The Industrial Sector: Factory Output Improvements Provide Big Boost for Sentiment

One of the leading indicators for the industrial property sector is the performance of manufacturing output. Official data shows that manufacturing output is improving which signals that the demand for space should start strengthening as the year progresses.

Certain proposals in the national budget also provide focus on policies that should play a role in stimulating specific industrial sectors. This bodes well for development opportunities in these sectors.

Considering this, the industrial sector should be close behind retail in terms of entering the recovery phase.

The Long View

In the medium to long run, the South African property market is expected to reap the benefits from an improvement in transport and related urban infrastructure. South Africa should also see the direct and indirect benefits of the 2010 World Cup. The two drivers offer considerable opportunities in specific markets and geographic areas.

South African property investors are also recognising the benefits associated with the changing structure of South African cities. These include a policy focus on the advantages of compact cities, the potential of mixed-use developments, and the role that South African cities play in the African Continent.