SAPOA warns of Office Market under strain

Local authorities with competitive rates, lower utility costs and incentives for property developers and owners will fair substantially better in attracting private sector investment according to SAPOA CEO Neil Gopal.

The South African Property Owners Association (SAPOA) sees 2014 outlook for Commercial Property sector with more development and diversification, although office market performance remains under pressure.

SAPOA says that efficient towns and cities with competitive rates and taxes stand to benefit from more commercial property investment and development this year.

“Local authorities with competitive rates, lower utility costs and incentives for property developers and owners will fair substantially better in attracting private sector investment,” says CEO of SAPOA Neil Gopal.

Gopal urges local authorities to capitalise on this as it would increase their pool of ratepayers.

“In 2014, property development activity will continue on a larger scale, such as Waterfall Business Estate and Steyn City,” says Gopal. “Public sector infrastructure spending - like roads, rail and housing - will also have positive impact on private sector developments.”

SAPOA’s recent meetings with the Mayors of Johannesburg and Cape Town with senior representatives of both cities was a big step forward in the dialogue between property sector and local authorities. SAPOA hopes to continue these discussions and expand them to other regions in 2014.

Gopal adds that South Africa’s low economic growth outlook of around 2%, a huge current account deficit and the possibility of a investment ratings downgrade by rating agencies, will have a negative impact on all sectors in our economy.

When it comes to commercial property he sees retail continuing its positive performance while the office sector will remain under pressure. “Much of sub-Saharan Africa is starting to attract new multinational investment and this is also bringing more diversification to the local property market with increased interest in retail development in other African countries,” says Gopal.

When it comes to South Africa’s listed property owners, Gopal expects more consolidation of smaller funds in 2014. This will boost the scale and liquidity of the funds. He points out the sector’s fundamentals are strong and vacancies are well managed, which bodes well for solid performance. The office market will continue to be under strain.

Gopal also points to the potential of residential REITs, will are likely to be explored by the sector this year.

And it isn’t only in sub-Saharan Africa that this sector is identifying opportunities. It is also investing in Europe, Australian and even the US. “The new REIT structure has also paved the way for inward investment into our listed property sector,” says Gopal.

However, Gopal cautions the sector will remain vulnerable to the several risks in 2014.

“We could see increased pressure on tenant retentions and rental growth given the low levels expected for GDP growth,” says Gopal.

He also lists the main threats to commercial property as: unsustainable levels of increasing rates and taxes, electricity costs, skills shortages in the public sector, the low economic growth rate, poorly conceived legislation, corruption and maladministration.