PROPERTY: Commercial Property Under Pressure
Recent Western Cape Business News
While the commercial property market remains under pressure, there are signs of recovery in some of the sectors, says Marna van der Walt, CEO of JHI property services company.
“Retail sales for May 2010 increased by a higher than expected 4.6 percent compared to May 2009 (still pre-World Cup), and some of South Africa’s major mall owners – including JSE-listed property funds and institutions – agree that in recent months there have been some positive changes regarding trends in consumer spending and the demand for space at retail centres,” says van der Walt.
“As the retail sector is positively influenced by the manufacturing sector, it is encouraging to note that manufacturing productions increased by 7.9 percent in May 2010 compared to May 2009.”
She says while there are some reported improvements in the property market, there are some setbacks. The latest statistics on the total number of liquidations for the month of May 2010 showed an increase of 35.7 percent over those in May 2009. Unemployment rose to 25.2 percent in the first quarter of 2010 and coupled with this, rising electricity costs and municipal charges as well as possible higher fuel prices are impacting negatively on disposable income.
“While the ratio of household debt to disposable income declined from 79.8 percent in the fourth quarter of 2009 to 78.4 percent in the first quarter of this year (2010), this reduction may be negatively impacted by the increases mentioned above. And while the inflation rate, currently at 4.6 percent, is still within the Reserve Bank’s target range of 3-6 percent, the increases in electricity tariffs and municipal charges are considered the biggest threat to the inflation rate, and may lead to higher interest rates,” says van der Walt.
“Most property owners are experiencing some strain from increased vacancies and lower rental collection due to increases in liquidations, unemployment factors and operating costs, and we anticipate this trend to continue for the next six to 12 months.
“Generally the commercial property market is still under pressure and it may be a while before the situation begins to improve significantly. However, vacancies are expected to start declining towards the end of the year (2010) as a result of the reduction in the number of new developments entering the market,” she adds.
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