Real Estate Investor Magazine South Africa February/March 2019 | Page 7

EDITORIAL
JOHANN RUPERT
VIEW
As we enter 2019 South African inves-
tors in particular need to apply more
innovative in their thinking and imple-
mentation in property management. It
starts with being more pragmatic and
proactive on critical non-performing in-
dicators to make investments profitable.
There are core themes that underpin
the property market , all of which may
have significant implications for future
trends. Dave Russell, Managing Direc-
tor of Baker Street Properties shared
property trends in the commercial sector
at a recent SAPOA networking event.
He said the costs to replace tenants is
extremely high including factoring in
installation allowances, marketing costs
to find a tenant and having a minimum
3 year lease agreement in place to make
it beneficial for good investor returns.
Rentals remain flat across the board
across property asset classes and vacan-
cies are on the rise. especially in the of-
fice and retail sector.
Commercial rentals an indicator of
strength in the market is still under
performing. According to SAPOA Q4
stats vacancies in KZN Durban area
are at 13,9% and CBD 19,5%. Johan-
nesburg comes in at 12,8% and CBD
14,7%. Cape Town is not doing too
badly at 7,8% and CBD at 11,8%. On
closer inspection Sandton has a higher
vacancy rate of 16,8% (323,000m2) of
office space available than the Johan-
nesburg CBD representing only 14,7%
(282,000m2). This mainly because of
the number of new developments that
have come onto the market. This means
that tenant retention is key for land-
lords. According to Russell, continued
competition between landlords will in-
crease with more and more concessions
to tenants.
The rate of new construction plans
passed is on the rise in the residential
sector but has slowed in retail and com-
mercial which has very little new com-
mercial and retail development coming
into the market. In the first of a four part
series in this issue REIM unpacks the
residential development hotspots in Jo-
hannesburg. Next month we unpack the
Cape Town market.
Offshore markets such as the UK still
offer opportunities if you play the nega-
tivity in your favour. The Brexit scare is
holding back many new investors jump-
ing in the market. A few of the JSE list-
ed property funds with UK commercial
portfolios (especially retail) are taking
“
proactive action on uncertain Brexit
outcomes. Many are renegotiating leases
at higher levels long in advance of expi-
ry with special agreements in place. This
gives more certainty on rental incomes
and to secure rent.
The US is starting to talk tough eco-
nomic times ahead while Germany is in
recession. The prospect of higher inter-
est rates in the US and EU will increase
market pressure. This time predictions
are that it will be worse for a US down-
turn compared to 2008 as debt is cur-
rently higher. Federal Reserve debt has
grown 600% in five years to over $5 Tril-
lion. The time for discounted real estate
coming into those markets will return.
In tougher times
jump in and out
quickly, making it
liquid. Properties
more strategically,
and bad tenants.
you simply cannot
of real estate very
more difficult to be
must be managed
including vacancies
Successful investing
NEALE PETERSEN
FOUNDER & EDITOR-IN CHIEF
DALE CARNEGIE
If you want to conquer fear, don’t sit
home and think about it. Go out and
get busy.
“
T
he improved performance of the
SA property market is expect-
ed to show green shoots in the
second half of 2019. This will largely
depend on the outcome of the elections,
the direction of interest rates and more
positive signs that the economy is recov-
ering. If these factors start to point in
the right direction, buyer demand will
start to improve and property prices and
rentals may start to firm up, albeit, off a
much lower base.
Innovative
and pragmatic
action needed