PROPERTY: Converging Positive Factors Re-Ignite Interest In Investment
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Although commercial property in SA is not out of the economic woods yet, several key factors are converging to make the sector appealing to investors once again.
"We believe we're not really out of the slump yet, and so we're expecting economic and property fundamentals to remain challenging for some time," says Carl Von During of Broll Property Group. "But that's not to say that property investors aren't continuing to search for – and find – new opportunities."
Tenant fundamentals are the key to judicious investment decisions in the current market, points out von During. Properties with secure tenant covenants are much in demand, and investors hunting for guaranteed growth would do well to look at these types of buildings.
He adds that whilst there is demand for secondary properties, where, cap rates are more wide-ranging than in the past, substantial equity is required in order to fund deals. This is limiting the number of transactions being concluded.
Demand for prime property is expected to remain strong, but the constraint will come from the supply side, where desirable properties are hard to come by.
Generally, there is a limited supply of investment properties for sale. "We do however see some selling, as property funds refine, right-size and balance their portfolios," anticipates Von During.
We have not seen forced selling, as expected, in the SA commercial market. This is mainly as a result of the massive rerating of the commercial property sector that occurred before the recession and left the SA commercial property market in the favourable situation of having low loan-to-value ratios (low gearing). This together with the low interest rate environment has benefitted commercial property owners.
At the same time, there has been a drop in the rental levels being achieved, across all sectors. This is mainly due to the weak tenant demand and increased vacancy levels.
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