A few cracks are starting to show in some sub-segments of SA’s multibillion rand commercial property sector, where the demand for space is coming under pressure.
This sector – which includes retail, office, and industrial property – has thus far managed to survive thanks to high occupation figures. The South African Property Owners Association’s (SAPOA) report for the second quarter of 2008 indicates that the national average vacancy rate was 4,9%, with the Greater Johannesburg vacancy rate being 5,1%.
The national vacancy rate for retail property was 2,3% at the end of 2007 and 2,2% for industry property, according to figures released by the Investment Property Databank (IPD).
Since the release of the figures, dramatic developments took place on the international financial front and experts say it would be naïve to assume that the SA commercial property sector would be immune from it.
“The economic cycle is slowing down and this will obviously decelerate the demand for space in this sector,” says Anton de Goede, property portfolio manager at Coronation fund managers. He says although neighbourhood and community shopping centres have been affected by the downturn in the retail sector for quite some time, segments of the industrial property sector are also showing signs of distress.
The larger regional and super-regional shopping centres are in contrast more defensive due to their large percentage of national tenants.
He says the demand for mini-industrial units has started to decline and industrial space in excess of 10,000sq m doesn’t find tenants as easily as before.
With the mini-industrial units he ascribes it to small businesses that moved into the space during the boom period and are now struggling to survive.
The office sector still appears to be robust, but he says it is only logical that it will eventually wane in certain areas. He doesn’t believe premium-grade office property will be affected, but normal A-grade rental levels will start to consolidate if the current conditions continue.
The office sector remains a challenging environment, with the growth potential still being offered, but with risks.