PROPERTY: Industrial Space In Demand
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With the festive season over and January well under way, some media reports reflect increased business confidence in South Africa in general, which is coupled with growing anticipation in regard to the 2010 Soccer World Cup.
JHI CEO Marna van der Walt is cautiously optimistic and reports that in the first few weeks of trading this year (2010), the company's industrial brokers have seen a significant upturn in enquiries for space.
"While this trend has not extended to the office sector, it heralds a positive signal for the property market. However this must be realistically viewed against the backdrop of a constrained retail sector and contraction in household spending, which directly impacts on the manufacturing sector. The proposed electricity price hikes – still much under debate – would also negatively impact confidence, especially in regard to manufacturing," she says.
"On the other hand we are seeing that while banks have to some extent amended their residential lending criteria, some banks still require up to 20 percent deposits from investors entering the commercial market, which is of concern. But unlike 2009 when the recession caught many off guard, this year we perceive a general preparedness to boldly face the challenges ahead. A further reduced interest rate in the first quarter or first half of the year would be welcome, particularly if consumer spending remains sluggish, however indications seem that interest rates may start rising in the last quarter of the year (2010) which may put a dampener on economic recovery."
On an upbeat note van der Walt says that investment opportunities in the commercial property market do exist, particularly in areas which will be positively impacted by infrastructural developments such as the Gautrain and BRT routes. "The general consensus is that major opportunities will present themselves in the industrial sector and the recent indication by the Department of Trade and Industry to review the policy on industrial development zones may lead to increased investor incentives. In addition, the infrastructural improvements in host cities for the World Cup Soccer have added values to these areas, which can only help boost market sentiment and investor confidence."
She says while the Soccer World Cup will not have an immediate effect on the commercial property market, a successful tournament will bode well for the creation of investment opportunities towards the end of the year (2010), and in the following two years as a result of increased business confidence. Unfortunately opportunities for investments in the retail sector will remain low in the immediate future as asking prices are still too high.
Van der Walt says investors should look to providing tenants with more incentives in 2010. "Lower rentals and an increase in tenant installation allowances are some of the incentives which JHI is recommending that landlords implement in order to attract and retain tenants. Measures such as energy saving strategies should also be introduced in order to reduce monthly operating costs, and such a move would also certainly make a building more appealing for tenants seeking value for money. Investors are also advised to keep a close eye on tenant arrears and avoid vacancies by considering rental concessions."
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