Listed property managers barking up wrong tree?
Listed property fund managers are putting far too much effort into finding unavailable shopping centres in which to invest, while there are so many fair-priced office and industrial properties available, says Rode CEO Erwin Rode.
He was commenting on fund managers’ current strong demand for shopping centre properties, and their heavy weighting of retail in their fund compilations in preference to office or industrial premises. Leading listed property fund Spearhead, for instance, is 48 percent invested in retail, 32 percent in office space and 20 percent in industrial property, while the Capital fund has a 51% exposure to offices, 46% to industrial properties and the balance to retail properties.
James Templeton, an analyst with Barnard Jacobs Mellet, says shopping centres are very much in vogue since this sector of the property market has been outperforming others for the past five years.
As a result, owners are holding onto their retail properties and the listed funds are having to pay up for quality retail space. This, says Templeton, is exacerbated by an oversupply in office space and the historic under performance by industrial property.
But Rode says he is puzzled by the portfolio managers’ insistence upon chasing shopping centres while there is such a glaring oversupply of retail space on the market.
“Granted, this oversupply is cyclical and will be cleaned up two years from now. But the same applies to office space and industrial property, which will both perform very well in a year or two. In fact, indications are that the industrial oversupply is vanishing fast on the Reef.”
Templeton agrees that there is an increase in demand for industrial space, as SA exports pick up. Rode adds that industrial vacancies have trended down over the past 10 years, as little stock has been added. Thus it is increasingly hard to find decent industrial premises, and companies wishing to expand will soon have to consider building, he says. This will be reflected in market rentals.
“I don’t understand why portfolio managers waste their time and effort on unavailable shopping centres if the other pillars of the property market are about to start performing well – and are readily available. They are living in the past. Taking a 5-year view, shopping centres won’t be as lucrative as in the past thirty years,” says Rode.
“Two years from now, the office market is going to look decidedly different, and property fund managers should start gearing themselves for this. They should be contra-cyclical rather than pro-cyclical, if they want to capitalise on the coming changes,” he says.
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