Real Estate Investor Magazine South Africa July 2013

STRATEGIES BY PAUL BARROW Commercial Property Uncovered The head of the Barrow Group shares some insights T he Barrow Group in Johannesburg is a family-owned, f ifth-generation commercial property and construction company. Paul Barrow heads up the property side of the business and has identified some of the following trends and made some observations about the commercial property sector. • G ov e r n me nt ’s pl a n ne d rol lout for infrastructural spend, upgrading of roads and improvement of services will hopefully stimulate the economy, providing work for property professionals. • The office letting market remains tough, although the pressure remains mainly on Band C-grade buildings in marginal areas and this sector is expected to remain stagnant. • Interest continues to be good in the A-grade category, as well as in new buildings. This trend will continue and improve. • Vacancy levels in our office portfolio are as low as they have ever been – around 3%. The demand for office space in decentralised, safer and more upmarket suburbs continues, and is a global phenomenon. Proximity has always been crucial and continues to be so. • Due to improved public transport in Rosebank and Sandton, these suburbs will continue to gain popularity and there will be a stronger demand for office space. • Not ma ny developers cater for t he requirement of smaller off ice space in the A-grade sector. However there’s a demand among many well-established smaller businesses. • There’s a demand and an appeal among companies to entirely lease an office building for themselves alone, to give them a presence that is not diluted by sharing with other companies. • Some older office buildings are currently being divided – they were designed for a single tenant and have lost that tenant. They now need to renovate and divide, as it’s difficult to sell an 48 July 2013 SA Real Estate Investor entire office block that’s empty and not incomeproducing. Dividing it reduces risk and increases the likelihood of it to be rented out sooner. • Houghton is experiencing an uptake in demand for commercial property, following on the heels of Rosebank, the latter’s revitalisation having been a major catalyst. • The demand in Bryanston, where lowerrise offices are the norm, is to be located in a hub that has easy access to the surrounding residential area. It’s about working in close proximity to where you live. • The demand from overseas investors looking to establish a presence in South Africa continues. Their interest is in AAA-grade buildings in Johannesburg and locations that are secure, where transport is not an issue. • T here’s a lso a dema nd f rom S out h A frican businesses that need a presence in Johannesburg. Businesses in Sandton, not near the Gautrain, or located in older buildings are looking at better placed offices in new buildings. • With the cost of electricity continually rising and companies now more educated about energy-saving, they want to see the latest in technology to reduce consumption (especially air-conditioning and electricity) so as to keep costs down. This is the advantage of new buildings, which have been designed with energ y-saving in mind. This leads to responsible developments and it is also important that tenants are seeing developers as ‘doing the right thing’. • The landlord/tenant relationship is more important than ever and landlords are listening more to tenant requirements. Due to moving costs and a shortage of good rental deals, tenants are not likely to move around much. • One of the trends predicted for 2013 has been the dropping of rental deposits. This is only sustainable for large institutions because they rely on critical mass. Barrow doesn’t see it as a trend for the other players. Dropping deposits will remove the incentive for tenants to leave buildings in a good condition and with paid-up utility bills. • Advice to developers: they should stick to what they know; their niche in the market and not diversify in the hope of more profit. It’s tougher to succeed if they diversify. • The construction industry has been through some challenging times, but is seeing signs of improvement. RESOURCES The Barrow Group www.reimag.co.za

Real Estate Investor Magazine South Africa July 2013 | Page 50