Who’s buying what in the non-residential property world?

10-04-2007

Some buyer types are willing to pay more for a property — that is, buy at a lower capitalization rate — than others. Thus, the identification of the typical buyer is an essential first step in valuing a property.

Take the case of an owner-occupier of an industrial property. Unlike the institutional investor, whose focus is purely on the income-generating ability of a property, the owner-occupier is more focused on the efficacy of the premises for his business and how much he can save on rent. Return is not allimportant, a degree of emotional attachment comes into play and a sitting tenant has to consider relocation costs. Hence, it is common for owner-occupiers to pay more for a property than a return-driven investor. Likewise, syndicators generally also pay more for a property — most notably in the case of small shopping centres — than large institutional investors and listed funds.

According to Rode & Associates’ latest quarterly survey of typical buyers of non-residential property, private investors are currently the main buyers of properties below R10 million, whether it be retail, office or industrial property. In the case of lower-priced industrial properties, owner-occupiers are also major buyers, whereas in the case of lower-priced shopping centres, syndicators and private investors’ biggest competitors.

According to Rode’s expert panel, listed funds are currently the most likely buyers of shopping centres, office properties and industrial properties in excess of R10 million; their major competition comes from institutional investors.