Upswing in demand for Commercial Property
Recent activity on the auction floors shows that investors are now chasing yields. Commercial real estate is seen as one of the safest investments to park capital during volatile equity and exchange rate environments.
Although retail sales growth has moderated to some degree, private investors continue to demonstrate a steady appetite for property acquisitions, says Norman Raad, CEO of Broll Auctions and Sales.
With 2.4% year-on-year growth in May, retail sales growth has still outperformed for the current year to date when compared to the same trading period last year.
"While retail has begun showing signs of saturation with some shopping centres ‘stealing’ from neighbourhood malls to offer something cheaper and more attractive in this very tight and consumer-driven market, astute investors are capitalising on opportunities in decentralised nodes in regions around the country,” said Raad.
He said the industrial sector has shown definite signs of growth with limited availability of good quality logistical warehouses and smaller mini-unit warehouses.
In the office market, space is generally oversupplied, although the gap between new office rentals and existing commercial space is ultimately expected to narrow.”
Generally, he says, there have been changes in the commercial sector with even greater emphasis on secure tenants and easily let, well-positioned properties.
“Buyers are enjoying the current cycle of opportunities, with experienced investors buying high-yielding assets as the commercial market and investors reinvent themselves — on a playing field with different rules.
“It is interesting to separate the listed property sector from the private property investment market, as they have different investment limitations in terms of acquisitions and growth. The funds are aggressively looking outside the borders for sound investments, as well as acquiring development firms in the different sectors to secure pipeline properties, as investment stock is as scarce as hen’s teeth.
“We have also seen a number of the funds diversify into the residential market, searching for income and yield-enhancing residential units. The demand for student accommodation is also on the radar, but this investment decision depends largely on having management services … that are experienced in dealing with the tenant.”
He says the private commercial property investment market is faced with financing limitations. Commercial Banks are asking for 25-50 percent capital on investment properties and with the just-announced interest rate increase, a variety of different factors influencing investors’ decisions. This also includes increase in rates, electricity and municipal accounts, which are not being able to be passed on to tenants across the board.
