Want to stay informed?


Click below to subscribe to  the
"Rode Review"
 our free monthly newsletter.


Steady renewal of optimism in commercial property market


March 30, 2011; Johannesburg: First National Bank and property consultants Rode and Associates today launched a report on the country’s property market that shows a gradual return of cautious optimism in the office and industrial sectors of the property market. The latest Rode’s Report on the SA Property Market states that capitalization rates strengthened (i.e. declined) marginally in the fourth quarter of 2010.

“The strengthening capitalization rates do imply renewed investor confidence regarding the prospects for capital growth. Driving the more favourable outlook was the (albeit spotty) resurgence in economic activity, bringing with it improved prospects for property fundamentals,” says Erwin Rode, CEO of Rode & Associates, publishers of the report.

However, notes Rode, a danger signal was the “hefty sales by foreigners of South African gilts over recent months, resulting in some upward pressure on long-bond yields. Should this trend continue, investors might again require higher income returns on their property investments.”

The steady resurgence in optimism was also supported by the improved performance of market rentals in the reporting quarter.

Office rentals in Johannesburg decentralised were leading the field. These were, on the whole, up by 10% on the same period a year earlier, while Pretoria decentralised reflected a 5% rise. Cape Town and Durban decentralised, although not as strong, still managed to reflect 3% and 1% growth respectively.

Industrial rentals were still lower when compared to the same quarter a year earlier. Nevertheless the contractions in industrial rentals on the Central Witwatersrand (3%) and Durban (1%) were not as bad as in the previous three quarters of the year. In the Cape Peninsula, rentals were at the same level they were a year earlier, while in motor city Port Elizabeth (+8%) the strongest growth in rentals was recorded.

Says Rode: “While industrial rentals are generally still drifting lower in nominal terms, building costs (as measured by the BER Building Cost Index) have contracted by an estimated 4% at the end of last year. This implies real rentals are more or less stable.”

As for residential rentals, the mild recovery in flat rentals continued in the fourth quarter of 2010, and these rentals are growing at close to the official inflation rate. Noteworthy growth rates were as follows:

Johannesburg (+1,9%); Port Elizabeth (+0,4%); Durban (+3,8%); Cape Town (+3,6%); Bloemfontein (+3,5%); and Pretoria (+3,0%). These growth rates compare with the CPI of 2,6% (excl. housing) in the reporting quarter.

“Rode’s Report is of great importance to FNB Commercial Property Finance as we strive to be the preferred commercial property financier within the industry. Clients demand a financing partner that understands their business and that will continue supporting them by offering tailor-made financial solutions and exceptional service on a sustainable basis,” says Lukesh Govindasamy, Head of FNB Commercial Property Finance.

Note to sub-editor: Capitalization rates are the unlisted-property equivalent of the forward earnings yield of equity. When they rise, market values drop, all other things being equal, and vice versa.

Contact details:

Erwin Rode (editor-in-chief, Rode’s Report on the SA Property Market) 082 431 7193 erwin@rode.co.za

John Lottering (Editor, Rode’s Report on the SA Property Market) 083 602 5522 john@rode.co.za