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Property sector returns still weak, but green shoots are emerging

23-07-2018

The property market performed slightly better in the second quarter of 2018, with rentals picking up for several property types. However, the sharp fall in listed property total returns in the first six months of 2018 is probably more reflective of the bleaker state of the property market, according to the latest Rode’s Report on the SA Property Market released in July.

Industrial property continued to be the standout of the different property types, with rental growth for the second quarter again beating building-cost inflation of about 7%. Nominal rentals for prime industrial space of 500 m² in the Cape Peninsula again performed the best of the four major industrial regions in South Africa, with growth of 16% year-on-year. The top node in the Cape Peninsula was Woodstock/Salt River/Observatory (R77/m²), with rental growth beating inflation for the third consecutive quarter. Rode highlights Woodstock’s UDZ status and its good location as drivers of its high rentals. Other areas in the Mother City attracting high rentals are Brackengate (on the R300) and Rivergate Business Park (east of Parklands on the West Coast, with good access to the N7).

The office market surprised on the upside in the second quarter of 2018, with national rentals increasing by 6% – the fastest growth since the end of 2016. However, growth was still lower than building-cost inflation. This is no surprise as oversupply, reflected by double-digit vacancy rates, continues to characterize this market. Nominal market rentals for grade-A office space in Cape Town decentralized outshone the other major office regions, growing by 8%. This good rental growth is in line with the city’s low vacancy rate, says Erwin Rode, CEO of Rode & Associates. Johannesburg decentralized rentals (+6,5%) continued to accelerate, while rentals in the Pretoria suburbs (+4%) recovered somewhat.

The headaches of retail property landlords should worsen, according to the latest Rode’s Retail Report, also published in July. Rode highlights the continued decline of trading densities amid slow sales growth and oversupply. “Retail sales growth is slowing as consumers are buckling under financial pressure due to a moderation in salary growth and rising expenses”.

On the residential side, flat rentals outpaced consumer inflation in Durban and Cape Town. However, some cracks are emerging in Cape Town, especially in the upmarket suburbs.

For more information, please contact Kobus Lamprecht on 021 946 2480 or send an e-mail to kobus@rode.co.za