Real Estate Investor Magazine South Africa August 2018 | Page 42

INSIGHTS
Property Sector
Returns Still Weak
But green shoots are emerging
KOBUS LAMPRECHT
Head of Research and
Publications at Rode &
Associates
T
he 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 prop-
erty 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
40
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 Pen-
insula 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 at-
tracting 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 low-
er than building-cost inflation. This is
no surprise as oversupply, reflected by
double-digit vacancy rates, continues
AUGUST/SEPTEMBER 2018 SA Real Estate Investor Magazine
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 decentral-
ized rentals (+6,5%) continued to ac-
celerate, 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 oversup-
ply. “Retail sales growth is slowing as
consumers are buckling under finan-
cial pressure due to a moderation in
salary growth and rising expenses”.
On the residential side, flat rent-
als outpaced consumer inflation in
Durban and Cape Town. However,
some cracks are emerging in Cape
Town, especially in the upmarket sub-
urbs.