PROPERTY: Commercial Projects Attract Smart Money
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FOR those that have money to invest there are still opportunities in the commercial property market where yields on A grade properties are still obtainable in excess of 10% with 10% lease escalations giving additional capital growth to this type of investment, says John Witter of Horizon Capital.
In addition, with interest rates expected to decline further, commercial property capitalisation rates should drop further over the next year, giving more capital growth. The expected drop in interest rates will also reduce the cost structure of owning commercial property as most of these new investments are geared at around the 50-70% level,” he says.
“The acquisition of commercial property is far more technical than residential property, where a good position is the most important factor. With commercial property, provided that a good buying decision has been made and good quality leases are in place, the investment is more like owning a gilt with an escalating coupon,” Witter says.
Horizon Capital is a Cape Town-based corporate finance and commercial property company which specialises in acquiring and managing directly owned, Cape-based, diversified, commercial property portfolios for high net worth clients.
It offers a full service from the acquisition of properties, refurbishment where required, ongoing letting and tenant management, bi-monthly management accounts and the organisation of audited annual financial statements of the owners’ entities.
Witter says Horizon Capital’s commercial property division has a diverse range of skills with graduates from the accounting, quantity surveying and property fields ensuring that the correct acquisition and management decisions are made. “The focus is on properties falling in the range below the size required by the listed property companies,” he says.
“The current initial phase of the down trend in the interest rate cycle is providing a unique opportunity to invest in carefully selected commercial properties with healthy capital gain upside and yield growth. Any decrease in interest rates results in an increase in spending which affects the tenant base positively.”
“In addition building costs have escalated steeply over the last few years. When the construction cycle starts responding to an increase in demand for commercial property; replacement costs will be far more expensive pulling up rentals and the value of existing commercial property,” Witter predicts.
“Entrepreneurial investors who understand the economic cycle and who have the vision to see the opportunities offered by decreasing interest rates should use the current phase to acquire the cherries that become available during difficult times,” Witter says.
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