Real Estate Investor Magazine South Africa August 2013

STRATEGIES in the workings of the commercial property market and investors should dedicate sufficient priority and resources to maintaining good communication with tenants. Knowledge of tenant positions and operational requirements is paramount to any successful propert y investment strategy. Listed Sector – In most major markets across the globe, prime property is generally held by the listed sector and South Africa is no exception. Private investors looking to enter the market or expand upon their holdings are best advised to consider the listed sector as a viable alternative to buying direct property. Buying into a listed vehicle, affords even the most modest of investors an opportunity to partake in this exciting asset class. Funds are generally well managed and the scale of portfolios allow the effects of a single underperforming property to be smoothed over. Again, investors should conduct due diligence on their selected fund, with particular attention paid to the management team, its strategy and underlying property assets. Many funds have both local and offshore investments in their portfolios providing the added security of a Rand hedge. Perhaps the greatest advantage of investing in a listed fund, is the flexibility to disinvest at short notice should the need arise. Fixed Property – There is an understandable attraction to investing in directly held property, not least of which is an ability to raise capital and gear the investment via mortgage bond finance. Given access to capital, a solid investment strategy, the right property, solid market knowledge and time to actively manage the asset, fixed property acquisition is a recommendable course of action and investment security. The success of direct investment in commercial property is evidenced by the fact that despite the economic climate of the past few years, there have been few “fire sales”. Commercial property in South Africa has continued to perform well and values have generally held. Contrary to speculation there are few bargains to be had and property has since 2008 continued to trade at fair value. If there is to be an alert sounded in the direct property ownership space, it is that the sale of property takes time, particularly with currently protracted transfer procedures. Direct property is relatively illiquid. Sectoral Opportunity – Commercial property is broadly divided into Retail, Off ice and Industrial sectors. Retail rentals have witnessed continued increases in regional and super regional centres. It could be argued that the super regional market is saturated given the current economic climate. There is however significant scope to further develop and invest in decentralised local convenience centres , particularly in rural areas of the country. The prime office markets in all major cities continue to be a desirable investment. Existing buildings in good locations do however trade at well below replacement value and there is signif icant upside to be had upon refurbishment, providing the resulting product meets with modern tenant requirements. Industrial and logistical warehousing is perhaps the only sector, which until now has been somewhat overlooked by the listed sector. By implication, this represents the most interesting opportunity for private investors although it is not anticipated that this window will remain open for long. The proposed deep water port terminal in Durban combined with the inevitable tolling of Gauteng’s major freeways will result in some demographic shifts as distributors look to reposition their facilities accordingly. Wel l-informed investment decisions should provide both yield and capital appreciation in the medium term. Investors would be well advised to look to midi to maxi sized facilities rather than mini-units which are the most susceptible to economic volatilities. International Investment – Investment in direct property beyond our borders should remain the preserve of the larger investor and listed sector for the foreseeable future. Any apparent bargains should be thoroughly interrogated as it is unlikely that local capital would have overlooked opportunity without good cause. Again, the listed sector and private equity funds would be the most recommendable route to entry into global markets. Investors are strongly advised to retain appropriate advisors prior to sinking hard earned Rands into the vast and ofter complex foreign markets, even if this investment is via REITs. There is every reason for commercial property investment to retain its reputation as a highly desirable and rewarding asset class. At the start of my career in the world of commercial property, a mentor advised “never to get emotionally attached to property”. Don’t let ego or personal bias cloud any property investment decisions. Property is after all just a commodity, there is a right time to buy and most definitely a time to sell. What distinguishes success from failure , is timing, patience and most importantly, knowledge. RESOURCES Jones Lang LaSalle 40 August 2013 SA Real Estate Investor www.reimag.co.za

Real Estate Investor Magazine South Africa August 2013 | Page 42