Positive outlook for commercial property sector

The last twelve months have been fairly torrid for most investment sectors, with the South African commercial property sector being one of the few exceptions. Craig Hallowes, spokesperson for the Association of Property Unit Trusts (APUT), reflects on what was generally a good year and sees much to be positive about ahead.

While many investors are glad to see the back of 2009 and hoping that all the recent optimistic talk of ‘the end of recession’ amounts to more than hot air, those exposed to the South African commercial property sector are likely to be in a much more festive mood and, on the whole, quite happy with the last twelve months.

Unlike many others, the sector has remained in pretty good shape throughout the past year and, in fact, performed remarkably well from an international perspective — ranking in the top three globally for listed property.

There are, of course, numerous interconnected reasons for this. One contributing factor has to be the shortage of available stock on the exchange. The fact that, unlike the US, we have not seen any major failures locally in the past year would be another. Our banking sector has also been better managed and that, coupled with the lack of major failures, is reflected in the market’s comparative lack of volatility throughout 2009.

This is not to say the sector has escaped the recent economic cycle entirely. Tenant defaulters and rental reversions were up in 2009, with smaller tenants, especially, taking strain, but these have failed to reach worrying levels. Investor confidence has been further bolstered by the sound management structures in place in the majority of companies and reflected in their astute responses to the changing economic climate.

Overall, 2009 was better than many feared. While growth prospects are down, they are far from terminal and — provided the new political dispensation can save our crumbling municipalities — the outlook for the next few years looks good.

2010 and beyond

Amid the euphoria and hype, it might be tempting to think that too much has been made of the 2010 World Cup, but that is not the case from a commercial property perspective. The massive infrastructural improvements being made will have a tremendously positive impact. Not only will the improved transportation links benefit commerce as a whole, they will also both create new — and stimulate existing — commercial nodes.

Then there is also the major bubble of activity the event will trigger. It won’t be restricted to the hospitality and leisure industries, with retail centres, logistics and supply companies all clearly benefiting as well. The majority of services to the World Cup will require office space during the event also. Lastly, there is the long-term knock on effect of exposing South Africa to the rest of the world.

As we look ahead to new year, there’s plenty to be quietly positive about, but we must also be careful to keep our expectations in check and remember that growth prospects remain tempered. South Africa is the hub of Africa, and the World Cup will entrench that for now, but we are still part of the global economy and, while there has been a tick up in economic growth, there is still a fair way to go to sustained global economic recovery.