Blog by Rode

Offices in South Africa’s suburbs are in growing demand, yet are still not commanding higher real rentals, the latest issue of Rode’s Report shows.

Underdog Port Elizabeth is fast catching up with the industrial rentals of other cities. Since 1999, the city’s industrial rentals have grown relatively faster than those of the other main industrial conurbations.

The tide seems to be turning for non-residential directly-held property, with capitalization rates continuing to decline (improve) in the last quarter of 2003. This confirms the turnaround noticed in the previous quarter, say property economists Rode & Associates.

The tide seems to be turning positive for capitalization rates — and thus for property values.

The property market’s expectations regarding the total returns it can earn on non-residential property are unrealistically high and out of touch with what can reasonably be expected in the present lower-inflation environment.

Investor sentiment towards non-residential property improved at the end of 2003.

It’s been a while since the non-residential property industry has had a Christmas gift. Now, after years of unfavourably high capitalization rates, it seems that the worst is finally over for investors.

Capitalization rates finally appear to be softening, fuelled by listed property funds’ insatiable demand for non-residential directly-held property. This improving trend seems evident for all types of non-residential property except industrials, according to the Rode’s Report for quarter 2003:3.

A gap is appearing between what banks are prepared to finance versus what investors are prepared to pay for obsolete buildings in Cape Town’s central business district.

Is the long bull-run over for government bonds — and thus for listed property, which closely tracks the performance of the former?

It’s official — a house’s view is an integral part of its value. A full bench of five Appeal Court judges has, in a recent far-reaching decision, found in favour of a Durban homeowner who took the council to court for approving a development that would spoil his view.

Office demand in South African cities generally seems to have taken a turn for the better. If this continues, say property economists Rode & Associates in their latest review (quarter 2003:2) of the property market, it can only spell good news for the office property market.

The looming deadline for the completion date of capital gains tax (CGT) valuations will in all likelihood bring on another drivers’ licence fiasco.

It’s no longer a best-kept secret. Property investors have for a while been eyeing and investing in residential conversions of office buildings in the central business districts in Cape Town and Johannesburg.

While real prime CBD office rentals have been flat everywhere, the Durban CBD has surprised with real rentals rising for the last three quarters. And money talks, a local leasing manager says. This increased demand is likely to be the result of firms returning to the CBD.

The non-residential property market remained under pressure in quarter 2003:1. Still, glimpses of a recovery were noticed here and there, say property economists Rode & Associates in their latest review of the property market.

Listed property is going from strength to strength. The property trust sector has shown a growth of 42% over the past year compared with the all-share index showing of -27%.

While the rand’s consistent rise spells bad news for SA rand-hedge stocks, investors in listed property have reason to be happy because this sector closely tracks the long-bond yield, which is drifting lower as US and European investors pour money into SA long bonds.

Listed property has finally wiped out its undervalued status relative to directly-held property. This property class is now on average trading at a small premium relative to non-listed property, which should lead to more listings of directly-held property in the listed property sector.

The current boom in house prices has done nothing to benefit South Africa’s poorer home-owners.