Real Estate Investor Magazine South Africa August 2013 | Page 45

COMMERCIAL
of the developed nations adjusting their
diversification strategies but some blame must also
be apportioned to the lacklustre outlook presented
by our own national government following the
problems within our resources sector.
What will determine our property sector’s
future includes the following key outcomes:
1. Whether our general economy grows at an
average rate in excess of 3.5% per annum
for 2013: readers are asked to note that a
current growth rate of approximately 2% is
anticipated during 2013 but that 3.5%
is required for the property to encounter
meaningful organic growth (please see
diagram 1, below);

The three key factors which would bode well
for increased take-up in commercial property
are (1) a decrease in the number of liquidated
companies during 2013, (2) an increase in the
number of new firms entering the market and
(3) a decline in unemployment.

Consumption risk
For the purposes of this article, I mean to refer
only to private household expenditure: growth
in this regard has slowed to a very low of 2.3%
in recent months with expenditure on durables
(that which lasts longer than one year) declining
to 5.4%.
An household debt-level (measured against
disposable income) of 75.5% is entrenched in our

Diagram 1: South Africa’s GDP growth in recent years

16.00%
14.00%
12.00%

8.00%
6.00%
4.00%
2.00%
0.00%
2005

2008

2009

2010 2011-Q12011-Q22011-Q32011-Q4 2012 2013-Q1

GROSS DOMESTIC PRODUCT

PRIME

INFLATION

2. Whether our resources and agricultural
sectors stabilises in the immediate term and
begins to contribute meaningfully towards
our gross national product. A growth rate
in resources of 6% and in agriculture of 12%
is required to support our overall growth
rate;
3. Whether our manufacturing sector posts
meaningful growth of around 6% this year;
4. Whether the improvement in plans passed
continues to register at above 5% per month.
Although plans passed is a measurement
directly related to the property sector, it is
also a sign of revived confidence in our
economy.

society and this means that private household
consumption expenditure shall remain under
pressure for many years to come.

Trading risk

Property sector risk

An improved economy delivers an environment
conducive to improved trading conditions for our
local businesses. This results in fewer liquidations
and less unemployment.

Investment Property Databank indicates that
the recorded commercial property sub-sector
returns for 2012 (across their collated data) were
as follows:

www.reimag.co.za

TOTAL RETURN

All property

15.20%

Retail property

17.10%

Office property

11.90%

Industrial property

15.90%

You will immediately notice that despite our
slow growth rate in the general economy (please
see diagram 1), commercial property continues to
remain strong – provided, of course, that you are
invested in the correct property and manage the
property optimally.
The positive news emanating from our property
sector is that non-residential building plans passed
have increased by some 33% year on year (an average
of 11% per month) for the first quarter of 2013. The
significance of this is that developers have perceived
the increased need to obtain approval for new
(commercial) buildings and this means that they
have anticipated improved demand for such space.
An interesting trend in South Africa is the growth
in our citizens who now shop online: 54% of South
Africans use the Internet for online shopping of
some sort, according to a Mastercard 2012/3 survey.
Although this compares favourably to, for example,
Egypt at 36%, Morocco at 18.5%, Nigeria at 18%
and Kenya at 8.5%, it indicates a trend towards
reduced shopping centre activity in favour of online
retail activity.

10.00%

2.00%

PROPERTY TYPE

The principal significance of this is that, if
consumption expenditure remains subdued, so
will manufacturing growth (and the associated
demand for factories and warehouses) and even
the tertiary sector’s take-up of office space.
The key variable to watch in this instance is
retail sales growth which was most recently
recorded as 1.9% (in April, 2013) and as 2.7%
(in March, 2013). A desirable level of growth in
this regard is above 6%.

The risk of fixed property is whether demand for
this commodity remains as strong as it is now. And,
so, the benchmarks to monitor as far as our property
sector is concerned are:
1. Growth in building plans passed (which should be
at least 5% per month) and growth in building
plans completed (which needs to eventually equate
5% per month);
2. The income yields being achieved throughout
commercial property and which currently
averages at 10.6%;
3. The vacancy levels within our property
developments which are close to 20% within the
office sub-sector but measure, on average, close to
0% in the retail sub-sector
4. The level of take-up vs new or additional space
available throughout our land.
It is our considered opinion as this article goes to
publication that commercial property remains a very,
very good investment opportunity.

RESOURCES

Courtwell Consulting

August 2013 SA Real Estate Investor

43