Commercial properties beat the market

Commercial properties beat the market

Directly held commercial property outperformed equities and bonds in South Africa last year.

The SA Property Owners Association's property index, International Property Databank (IPD), released yesterday, showed property unit trust listed property funds achieved a return of 12.2 percent and directly held property posted a 10.4 percent return last year, compared with 2.6 percent for the equity market and 10.1 percent for bonds.

South Africa's overall commercial real estate market achieved modest growth last year, with a 10.4 percent return.

Uncertainty in global markets, weak local demand and slowing consumer confidence resulted in muted capital growth of only 1.4 percent while income returns were steady at 8.9 percent.

The index is based on a sample of 2 017 properties with a capital value of R204.8 billion at the end of December.

IPD South Africa managing director Stan Garrun said yesterday that the results confirmed the impact of global economic instability and subdued conditions locally on real estate investment performance.

He said high operating costs and a serious mismatch between demand and supply were taking their toll on returns.

"While these figures do not necessarily point to further recessionary conditions, they do indicate that it is a long haul back to pre-2008 levels. The good news is that prime assets are performing well in all sectors. Any economic uplift should quickly release major new income growth for both tenants and landlords, as well as a pent up property development pipeline," he added.

Garrun said fundamentals were placing downward pressure on rentals and bottom line returns even at national level and vacancies rose from 6.6 percent to 6.9 percent, rental growth reduced to 6.2 percent and rental yields softened by 36 basis points to 9.6 percent.

Retail property achieved the strongest capital growth of the three main sectors for the third consecutive year with a 10.1 percent return, comprising an 8.3 percent income return and 1.6 percent capital growth.

The office sector produced a return of 11.2 percent, comprising 1.3 percent capital growth and a 9.7 percent income return. Industrial property managed a return of 11.9 percent, with a 10.4 percent income return and 1.4 percent capital growth.

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