Hotspots & How To

Investing for the year ahead

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By Monique du Toit

With each new year comes new snippets of advice from experts regarding the best investment strategies. 2017 Was a notoriously tumultuous period for local investors, from state-wide corruption to Steinhoff scandals. You’d be forgiven for being overly cautious about putting your money anywhere other than under your mattress. But 2018 has started off on a cautiously optimistic note.

When it comes to property in particular, there are many opportunities to be had. As Tony Clarke, MD for Rawson Property Group points out: “Our property market is definitely going through a period of contraction, but not all of that can really be attributed to politics. We’ve been seeing a slowdown in growth over the last 18 months. Ups and downs are a natural part of the property cycle, and certainly don’t mean there are no opportunities out there. These kinds of transitional periods are an adjustment, but if you approach the market with the right information on hand, there are still opportunities to be found.”

According to ooba’s Q4 2017 statistics, 2017 was a tough year for the property market. Group CEO, Rhys Dyer, explains: “The property market is significantly influenced by sentiment and consumer confidence. Increased political uncertainty, low economic growth and inflationary pressures caused property buyers to ease off on new property purchases during 2017. Reduced demand for property forced sellers to adjust their prices to meet the demands of a more cautious buyers’ market, resulting in negative price growth in real terms when inflation is factored in.” But it’s not all doom and gloom, he says: “We expect the new ANC leadership to deliver improved policy certainty during 2018. If this happens, consumer sentiment will recuperate and boost demand in the property market. This in turn will drive increased property price growth over time. We can then expect the year-on-year property price growth to rise by 6% for the last quarter of 2018, compared to only 1.4% compared achieved for the fourth quarter of 2016.”

According to Dyer, the current market presents an opportune time to invest in property before the good news in the economy factors into higher property prices. But where are we supposed to look when it comes to choosing a property?

Commercial and Retail Property

According to Linda Tshabalala, business development manager for the Commercial-Public Sector at Lightstone, points to specific trends in the business, retail, and industrial property markets for the year ahead:

Office space
Even though businesses may experience internal growth and require additional space, the current trend indicates that office tenants and owners will rather endeavour to employ the services of working space specialists, encourage mobile offices rather than relocating to bigger office space.

Another external element that needs to be considered is the global trend of shrinking office sizes. In recent years companies have started moving away from individual offices and cubicles in favour of a more social work setting.

Minimalising work space has also played a part and as a result, many property managers and landlords are finding themselves leasing to a larger number of tenants, each utilising a smaller space with more employees. Medium-to-small businesses have also started leaning towards flexible leases and subdividing space to share risk and ultimately reduce monthly costs.

Retail
South Africa is the sixth most ‘malled’ country in the world. This is rather alarming considering the uncertain economic climate and all the different contributing factors that need to be considered for a shopping centre or mall to be successful and show financial conviction. The additional pressure on the end consumer’s disposable income shows a decrease in foot traffic in shopping malls and ultimately the individual’s spend.

Stuttafords, River Island, Mango and other previously stable retailers have been forced to withdraw from the country, creating more and more vacancies in large shopping centres. This could be indicative of developers moving to smaller, nimbler ‘strip malls’ with much less gross leasable property (GLA) to fill.

Industrial

One of the only sectors to show resilience is the industrial zones. Developers are continuing to build on risk and are rewarded with a favourable uptake of tenants in spaces such as warehouses. Interestingly, the logistics industry seems to be the catalyst for the stability in the industry with many new high-tech warehouses catering specifically for this division.

A great example of this is Fortress Income Fund which is seen as a leader in this space after disposing most of its office portfolio and old industrial assets, to turn its focus on developing new high-tech warehouses aimed at the logistics sector.

Bond insight

The total number of registered bonds in 2017 YTD show a decrease compared to 2016 year-on-year. The City of Cape Town is the only municipality with a notable increase from 2016 and sustained growth of bonds registered to the value of just over R25bn as well as increased inflation of 9.5% from 2016. Bond data shows a decline in transactional activity in Johannesburg from 2016, with a drop of 8.5% in value.

For more information on both luxury and affordable property trends as well as commercial insights, read the full article in our free, monthly digimag. 

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