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The South African property market continues to distinguish itself from other sectors as an investment magnet, with the sector currently valued at almost R 6 trillion.  Despite this impressive performance, South Africa lost ground in the 2016 JLL Global Real Estate Transparency Index - but should investors really be concerned?

SA – the only transparent market in Africa

South Africa is the only country in Sub-Saharan Africa to achieve a ‘Transparent’ rating on the 2016 index, mostly thanks to the listed property sector which represents mainly commercial properties. The country ranks 25th in the world for real estate transparency, reflecting the professionalism of our local property professionals.

However, the past few years have seen South Africa slip several places on the index – giving the local property sector a good reason to evaluate its practices and set higher transparency goals in future as it seeks to keep up with international competitors.

In order to maintain its position as the most transparent market in Africa, South Africa will also have to stay several steps ahead of countries such as Botswana (the most improved Sub-Saharan market), as well as Kenya, Zambia and Mauritius. These countries are currently classified as semi-transparent but are making steady upward progress in the rankings.

Keeping up with our main competitors

South Africa’s superior ranking amongst African nations, as well as the commendable improvements in the property markets of our neighbouring countries, will give many investors reason to be optimistic.

While our property sector remains competitive by regional standards, it’s important that South African property professionals remain vigilant. Maintaining international standards is especially important because our property sector competes for investors with nations at the very top of the transparency index.

The UK, Australia, Canada and the USA took the four top positions in 2016, with their local property sectors providing investors with the best access to information, ease of sale and purchase and solid regulatory environments.

Discerning investors demand quality information

In the age of big data, access to information is a factor that distinguishes the top nations on the JLL index – and South Africa may be wise to follow their lead.

The most transparent markets feature property information at the national, provincial, city, and even neighbourhood level, providing investors with a clear picture of the property landscape in areas where they wish to invest. A similar level of data could allow South Africa to rise even higher in the global property rankings.

What South Africa’s ranking means for the future

With many African nations raising the standard of their property sectors and a general increase in the standards applied by the world’s market-leaders, South Africa’s future competitiveness will require a superior level of transparency in all dealings, as well as access to as much market information as possible.

2016 is a year that presents a unique opportunity to the SA property sector: if standards are maintained and improved, the sector will be well-positioned to increase its popularity with international and regional investors.

 

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Contemporary space planners and building interior designers – even industrial psychologists – have long recognised the influence of changing demographics and social values, advancing technology, and the new nature of work on a company’s performance. After all, it is the people staffing an organisation that is the driver of business operations. This means human factors – mood, comfort, the need for natural light, space and privacy – need to be taken into account when designing the physical layout of corporate space. Work today often requires person-to-person collaboration or client interaction, and companies that keep up with the times and latest research seek corporate space that promotes optimal productivity.

Office Design Elements

Larger firms, because of their size, often value efficiency in addition to comfort-centric design. This takes the form of close grouping of personnel who cooperate often or who share common functions (e.g. departments or organisation by floor). Cost-efficiency can be achieved by the central location of shared spaces such as conference and break rooms, receptions, kitchens, and storage facilities. Staff will value the flexibility of modular furniture systems, which can be mounted on walls or moved around with ease. An alternative to rooms and office suites is zones – un-walled areas designated for unique functions (such as socialising or a private chat) and equipped with furniture and surroundings specifically suited for that designated purpose.

Because of the modern prevalence of collaborative work, businesses may be tempted by the open plan style of office layout (contrasted by cubicles). The idea is that creativity, team morale and identity, and open communication are fostered. However, drawbacks exist and need to be made known. Research has found open plan floors lead to decreased staff focus and productivity; as well as job satisfaction, which could in turn impact a firm’s ability to retain talent. It is best for noise management to be factored into office design – that is, workspaces should be positioned away from the main traffic flows.

Talent and reflection of corporate identity

A company’s brand and values are reflected in the ambience – exterior and interior – of the premises. This image is most prominent in the reception area, the first point of contact: businesses expend a lot of energy in choosing or creating a welcoming space, as first impressions can affect financial success in many ways. Technology companies, for example, emphasise aesthetically pleasing meeting and work places – elements such as a zone layout, carefully considered colour schemes and furniture material, and windows (natural light) are standard. Age demographic is a key factor behind this industry norm as young people make up the bulk of the technology sector. In an effort to attract top talent, amenities, in-house entertainment, network connectivity, and mixing of work and private life are commonly offered by firms and keenly considered when selecting corporate space.

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Cape Town continues to enjoy its status as the favoured South African market in which overseas property investors conduct business. The central business district has witnessed the growth of its resident population from about 1500 to nearly 6000 in the last four years. As a result, major retailers such as Pick ‘n Pay and Spar, along with tourism-related enterprises, have been able to sustain commercial success in the upmarket locale.

Adding to this growth, the new Bus Rapid Transport system (MyCiTi) has made commercial space along the main transport routes greatly sought after. The benefits extend to neighbouring Woodstock as the CBD undergoes renewal and expansion past capacity, with promising returns for investors who read the trend and acted accordingly. The IPD South Africa Biannual Property Indicator, released in September, showed the property sector returned a total of 7.4% on investment for the first six months of 2014, mainly via rental yield growth. This represents a 90-basis point improvement over the preceding December’s 6.5% biannual total return; and signifies the sector’s outperformance of both investment bonds (2.0%) and consumer price inflation (5-6%).

Industry analysts listed revenue increase from offshore investments, fixed property portfolio, and control of expenditure as significant factors in listed property counters’ achieving a weighted average growth of 12.6% for the year ended June 2014. This was well ahead of the predicted 8%.

A visible trend reflective of global real estate developments is the rising prominence of real estate investment trusts (REITS), introduced in South Africa last year. Nedbank Corporate Property Finance has stated that South Africa leans towards generalist REITs comprising a mixture of industrial, office and retail exposure; while capital growth opportunities exist also in trusts investing purely in individual property types. Investors looking towards commercial real estate via REITs will benefit from the fact that the long-term trusts are structured to be of medium-low risk owing to diversification by geographic region and property grade.

South Africa is becoming increasingly recognised as the cream of the crop by the global business process outsourcing industry. Overseas companies looking to get involved by off-shoring business processes to Cape Town will locate plenty of opportunities for finding space with developed infrastructure as well as experienced specialists to provide advice. Over the past four years, five of the world’s largest customer service operators – Capita, Infosys, Webhelp Group, Serco and WNS – have set up call centre operations in South Africa, joining others such as Aegis, Genpact, Mindpearl and Teleperformance already in the country. This trend represents sustained sizeable investment from a number of large, non-SA corporations and signals confidence in the human resources, regulatory framework and commercial property of the country. Facilities and premises, technology, cost base, an existing talent pool, language and time zone compatibility are top factors cited in the attracting of multinational organisations to a destination key in the global BPO market. The possession of these, coupled with the determination of government and the domestic BPO industry, ensure South Africa will remain among the top of global outsourcing destinations for the future.

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Cape Town’s industrial nodes have seen a steady decrease in vacancy rates over the past two years. As these vacancies are taken up, property owners and tenants can expect rentals to pick up.

The demand for industrial property however, favours the newer developments. The reason for this preference is tenants are looking for vertical space of between 8m and 12m that can be used for racking, and interior volumes that have few internal columns so as not to interfere with the movement of forklifts. These requirements seem to carry more weight than the physical footprint of the industrial property.

In practice properties in older industrial areas like Epping, Maitland and Bellville South therefore seem to be less attractive. Hence, properties in these areas are slightly cheaper than in prime industrial nodes, and may become attractive buys for redevelopment.

Paarden Eiland on Cape Town’s west coast has a similar problem in that warehouses and factories are seen as too dated. However, this node has access to good public transport through the city’s BRT system. Its proximity to Cape Town’s CBD also allows property in the area to command fairly good rentals. Not surprising, there is very little new industrial land available in Paarden Eiland.

The industrial area around Cape Town International airport is a very attractive location for light industrial development. North of the N1 relatively new industrial areas like Montague Gardens, Montague Park, Racing Park, Killarney Gardens, Racing Park, Atlantic Hills and Atlas Gardens – to name a few – have proved very popular.

Montague Gardens is still considered the most attractive address for industrial development. The industrial node has good access to the airport via the N7 and N2 national roads, and is only ten minutes from Table Bay harbour. Montague Gardens’ modern industrial sites are well geared to cater for modern warehousing. The industrial area is also close to residential areas, as well as the commercial and office developments at Century City. There are however, very few properties available for rent in Montague Gardens.

Killarney Gardens, like Montague Gardens also has a very low vacancy rate. It too benefits from being close to the airport and CBD, and access to good public transport. It is also surrounded by residential suburbs.

Milnerton Industrial area and Marconi Beam, between the Koeberg and Bosmandam Roads, appear to be favoured by light industries, and benefit from proximities to Centurion Business Park, Woodbrdige Business Park and Platinum Junction Business Park.

Looking at Cape Town as a whole it is clear that there is very little space available for tenants looking for sites in excess of 5 000m2. Boat builders in the Table Bay harbour area have also expressed a need for adequate space with an 8m clearance.

In addition, undeveloped land is in very short supply and there is very little prime industrial property available for new industrial developments. Properties that are available, especially in prime nodes like Montague Gardens and Killarney Gardens, are sold at premium prices.

Industrial property in prime locations are expected to remain in short supply in the foreseeable future, and these shortages will continue to put pressure on rentals.

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