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PROPERTY: 2009 Was A Bad Year


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Phil Barttram, head of property investment research at Cape Town's Old Mutual, says 2009 was a bad year. "While we haven’t seen another great depression, as some were predicting only a few months ago, we have definitely lived through one of the great recessions. Even though the chances of a worst case scenario fade with every passing month, we aren’t out of the woods yet."

Global consumers have taken a knock and remain cautious about the future, particularly here in South Africa. Just as expansionary stimulus from governments pulled us out of the mess, so tightening too soon or too aggressively could put us back. Nor should we expect to benefit from the phenomenal growth that prevailed leading into 2007. In the new world, post sub prime and a surprisingly co-ordinated global slowdown, it will probably take some time for the combined psyche to adjust to the fact that lower growth will mean less excess, higher productivity and an increased risk of failure.

Property returns tend to lag the economic cycle and we expect nothing different this time round. What we’ve found from looking at international and local experience, is that types of property respond differently depending on the stage of the economic cycle. While it sounds obvious, it is therefore imperative that we are able to identify where we are in the economic cycle and what we expect to happen over the medium term. Calling a recovery too early or too late could seriously hamper property returns. Obviously, being part of OMIGSA and having access to the Group’s resources adds a higher level of confidence and ultimately reduces our risk, Barttram says.

To decide how each of the commercial property segments will perform going forward we look at the drivers of demand and supply specific to that segment. The retail sector is largely dependant on consumers and their ability and willingness to spend. In addition, the large national retailers’ appetite for new space is a major contributor to increased supply. From our experience, the industrial sector, driven by the wholesale, logistics and production sectors, has tended to show a high correlation to the retail sector, especially during an economic recovery. Offices depend largely on business confidence and their expansion plans, with employment trends in the “white collar” sectors influencing price paid per square metre and importantly, the level of vacancies.

We are comfortable that the rest of the world is moving out of the recession and is now back to positive economic growth. This growth will be moderate and we expect to see a continuation of the trend where select Emerging Markets will outstrip the more developed economies. This particular recovery cycle is being led by renewed Chinese demand and the industrial and manufacturing sectors as they re-stock inventory levels that were run down during times of uncertainty. Key concerns are the sustainability of demand, the levels of government debt and any major corporate or even country failures waiting in the wings.

A similar story is playing out on the domestic front, although lagging the global recovery; we also expect manufacturing and an expected inventory restocking to play a positive part. However, current forecasts predict that our growth will be more in line with the more developed markets rather than the buoyant growth being experienced in China and the other BRICs. South Africa’s contraction in 2009 was deeper than expected but forecasts now anticipate we will be back at long term trend growth around the 3% mark in 2010.

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