Real Estate Investor Magazine South Africa June 2014 | Page 48

STRATEGIES
hardest hit when interest rates were at their highest in
1998. The sectors most likely to be effected and which
investors in commercial property should monitor
closely include the beverages, tobacco, hardware, books
and periodicals and footwear sectors.

Nodal obsolescence
No d a l ob s ole s c e nc e – t he d e te r ior at ion of
neighbourhoods as a result of age and failing
infrastructures – is of particular signif icance in
South Africa for a number of reasons. Nodal creep is
prevalent in many areas, such as the Eastern suburbs
of Johannesburg and in Randburg, to name but two
affected nodes.
Investors should be aware of the life cycle of each
node in which they are represented and the potential
(or lack thereof) of the node to be rejuvenated.

Rand volatility

Inflation
The first risk that property investors shall face is that
we shall be operating in an inflationary environment
as external circumstances place upward pressure on
inflation. These include the cost of petrol and vehicle
running costs, the cost of food, rising labour costs and,
lately, the cost of importing spare parts for our lifts and
air-conditioning systems.

Our strong currency is dependent primarily on
external factors and could weaken by as much as 25%
over a relatively short period. Although our exporters
would welcome such an event, a fall in the rand’s
comparable value would exacerbate inflationary and
interest rate pressures.

Vacancy management
Those property-owners who are able to market their
premises well and through the use of well-defined
letting strategies will obtain the benefits of a more
profitable portfolio.

Because the propert y sector is operating in an
inf lationary environment, we need to ensure that
our short-term escalation rates are pegged so as to
show real growth in returns and that our operating
expenses are carefully managed. If we do not do
this, real net incomes diminish and real returns
become negative.

Portfolios which have employed such strategies
(through the use of experienced brokers, for example)
have out-performed other portfolios and the risk
remains that managers shall be unable to identify
the letting strategies most appropriate