Commercial Property As An Investment

Escalation rates influences the value of the property

Commercial property has the advantage of having long term lease contracts unlike residential lease contracts that can only be signed for a maximum period of 12 months according to the CPA 68 of 2008. Each lease term has fixed escalation rates set in stone, which directly influences the escalation of the value of the property.

Commercial property is also financed based on the value and returns of the property and the lease contract unlike residential property where you need to earn a salary, or have proof of income, to qualify for a bond.

Other important factors in favour of commercial property as an investment

• The right commercial property will have the ability to give you far greater ROI’s than any residential property
• Commercial property can be refinance in the future to release equity in the property solely on the lease agreements that are in place.
• The transfer and bond costs in obtaining commercial property are the same as in purchasing residential property.
• In commercial property you can negotiate triple net leases where the tenant will be responsible for all maintenance to the property at his own costs.
• The value escalation of well positioned commercial properties far outweighs the capital appreciation of similar residential properties.
• The CPA 68 of 2008 does not apply to the letting of commercial property where you are letting it to a Closed Corporation, Pty Ltd and or Trust.
• Commercial property has a 10 year bond period, which means the investment will come to maturity much earlier that a residential investment.
• Commercial property are built more ‘ruggedly’ than residential property and you are more likely to spend a lot less on maintenance compared to residential property.

Current trends

Current trends in the greater Cape Town area: Airport City in Cape Town remains a sought after destination with lots of movement and limited space available.

Turnkey projects built to customer specs is the only solution remaining due to limited land available in this area. It is also a popular area for logistics and freight companies as well as larger trucking and distribution warehousing. These properties exist on the outskirts of the greater airport area, where there are limited land available for competitive priced developments to customer specification. Turnkey solutions can put together to suit tenants willing to enter into a medium to longer term lease, ranging from around R45.00 to R48.00 per sqm.

Office space in Gauteng:

More than any other province Gauteng is a hub of infrastructural change mainly as a result of major projects now reaching completion including the Gautrain and Rea Vaya BRT (Bus Rapid Transport System), as well as unprecedented road and traffic upgrades. As a consequence, whole commercial growth nodes are emerging, while the improved transport systems will see far greater movement and integration across regions as well as changes to traditional urban structures.

These major infrastructural projects present positive opportunities for the commercial property sector and will have a profound effect on the way commercial and office tenants view lease renewals in the forthcoming year. Less than 12 months ago, good quality sectional title office space was available between R12k and R14k per square metre. Currently, prices range from R16k to R20k per square metre in office nodes in Sandton and the northern Johannesburg areas.