Octodec coining it on City housing as demand surges

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Octodec Investments has identified city housing as an area of large growth in property opportunities in the next few years Octodec Investments has identified city housing as an area of large growth in property opportunities in the next few years

JSE-listed real estate investment trust (Reit) Octodec has identified city housing as an area of large growth in property opportunities in the next few years.

Gauteng province is home to over 12 million people, with major universities, hospitals - and, like most provinces, suffers from a shortage of city housing.

The emerging middle class’s demand for housing in cities is set to drive Octodec Investments’s performance over the next few years, says Jeffrey Wapnick, Managing Director of Octodec.

The company, which owns an array of assets including properties in the Johannesburg and Pretoria inner cities as well as Killarney Mall, reported 6.5% dividend growth for the six months to February.

Financial director Anthony Stein said this signified consistency, with the group having achieved 6.5% dividend growth for the year to August.

"Demand for residential units priced from about R4,000 to R7,000 is growing steadily. More and more middle-class people want to live in or close to our cities. I believe this is the sweet spot for Octodec’s residential portfolio," said Wapnick.

The company achieved a 1.6% increase in net asset value a share to R29.58 during its reporting period. Total property assets were valued at R12.7bn, having grown R362m. The R12.7bn portfolio comprising 316 properties realised like-for-like growth of 5.5% in rental income, while the ratio of net property expenses to rental income remained unchanged at 29.6%.

Overall core vacancies were slightly higher at 10%. The office, retail shopping centre and industrial portfolios showed improved occupancy levels.

Four major development projects worth about R648m were under construction during the period, of which two had been completed by the end of the period.

“To increase our geographic diversification, we are also considering residential opportunities outside of Gauteng which would be pursued by leveraging our existing relationships and expertise,” concluded Wapnick.

Office Sector Underperforming

Office vacancies remain static, which may prompt more companies to convert some of their offices into residential or other property types.

Emira Property Fund intends to convert some of its office buildings in Rosebank into residential buildings. Other funds could soon follow suit.

The South African Property Owners Association (Sapoa) reported a national office vacancy rate of 11.1% at the end of the first quarter of 2017.

"A significant factor driving the excess demand has been the amount of space left behind by large corporations which have consolidated into larger offices. This backfill risk has already contributed to an increased vacancy rate in certain nodes with the potential for more as several large development projects come on line in the short term," Sapoa said.

Read more on:

Listed Property / REITs  |  South African Property Owners Association (SAPOA)  |  Octodec Investments Limited  |  Emira Property Fund  |  Jeffrey Wapnick  |  Anthony Stein
Nedbank Corporate and Investment Banking

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