PROPERTY: Strain Across All Sectors
Recent Western Cape Business News
With demand for offices slowing down, a moderation in rental growth in this sector is a likelihood that must be considered. This is according to the latest Rode’s Report on the state of the South African property market in the first quarter of 2009.
But in the meantime, office rentals in the decentralized nodes of Durban, Pretoria and Cape Town still showed, on average, nominal rental growth above the growth in building costs, while decentralized rentals on the whole in Johannesburg grew in line with building-cost inflation (+9%).
Reporting on the industrial property market, the report notes that the economic threat facing the two pillars of this sector – namely retail trade (which affects both warehousing and distribution), and manufacturing and production – has put a severe strain on this market, ending the excellent run it has enjoyed over the past few years. The only nominal rentals that exceeded the expected growth in building-construction inflation were those in Durban, while at the other end of the scale Port Elizabeth’s poor performance showed nominal rentals contracting by 1% - largely owing to the misfortunes of its motor-vehicle manufacturing industry.
On the residential property front, while flat rentals were unable to show any impressive growth when compared to consumer inflation, the news for the house market remains even bleaker, with no relief in sight for the foreseeable future. Real economic growth in this sector contracted by 1,8% in the fourth quarter of 2008, and although interest rates have come down (with more cuts expected during 2009) this is unlikely to boost the market in the light of housing on the whole still being unaffordable and household debt levels remaining high at 75% of disposable income.
Commenting on the building-construction industry, editor John Lottering notes: ‘Cement sales – the best barometer of activity in this sector - remain in the red as annual growth continues to contract. In fact, in the fourth quarter of 2008, building-cost inflation, as measured by the BER Building Cost Index, is expected to have decelerated to roughly 9%, while build-input-costs, as measured by the Haylett index, are expected to have grown by about 17%. This implies a contraction in profit margins of contractors – the result of increasing competition out there.’
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