Where to for the commercial property industry?

Where to for the commercial property industry?

....Asks Rodney Luntz.

With the Rand having depreciated, growth in the SA economy predicted to be sharply down and the global economy in turmoil - “Where to now for the commercial property industry?”.

From an industrial perspective everyone in the market was clamouring for a weaker rand and given recent circumstances, commercial property experts are now pondering whether this will be the life line for the industrial property market?

Although a weaker rand will make South Africa’s manufacturers much more competitive, the truth is that the global crisis has dented demand and no matter how weak the rand is or becomes, if demand is down then the industrial sector as a whole will decline. Until the global economy and our own economy begin to recover, the industrial sector is going to remain depressed.

Furthermore according to economists our own growth forecasts have been reduced to 3.2% from 3.7% previously and to 3.6% from 3.9% next year. This growth rate will have very little effect on our employment numbers which again must have a knock on effect on the property market.

From an office perspective, the market is pretty stagnant with only certain nodes showing slight improvement. The slight improvement that is taking place is due to the fact that there is very little new stock coming onto the market and savvy tenants taking advantage of a weak market. The slowdown in the economy and no meaningful uptake in employment does not bode well for this sector.

The weak rand also has an impact on the retail sector as this adds to their costs due to imports being more expensive. Retailers were seeing the benefits of the low rates which put more money in consumers’ pockets, which in turn resulted in a greater turnover. A weaker rand however adds to inflation which then causes rates to increase. With interest rates looking to increase rather than decrease, the effect on retailers is obvious and the sector finds itself in a rather vicious cycle.

So overall a weaker rand, a slowdown in the economy and the global crisis are all putting pressure on an already weak market.

Notwithstanding this weak market we are still seeing a fundamental disconnect between what a seller wants for his property and what investors are prepared to pay. Under such circumstances, sellers need to understand that they are selling into a very difficult market and thus have to be realistic in terms of their pricing.

Properties which are not realistically priced are just not selling. In a strong market premiums may be paid for certain properties but not so in a weak market. In such a market pricing is everything.

If sellers aren’t realistic in their pricing then their only choice is to button down the hatches and be prepared for very turbulent times.

*Rodney Luntz is the Managing Director of the High St Property Co.


Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!