South Africa’s GDP turned negative in the second quarter of 2018, surprising some economists and adding an extra challenge to the country’s to-do list.
With slow growth and a challenging economic outlook until at least 2020, prices in many sectors are set to drop – and so could the value of many investments.
Can commercial property in Cape Town buck the trend and deliver growth in a recession – and when is the ideal time to buy?
Property is an evergreen investment – but rising prices aren’t guaranteed
Recessions affect various sectors of the economy differently, and the property market is no exception.
- With businesses feeling the pinch of slow growth and less buoyant consumer spending, they may be less likely to make major investments in commercial property or expand their premises.
- On the other hand, medium to large organisations that have budgeted for premises expansion are still likely to invest in commercial space – especially at the premium end of the market.
- High-end commercial properties probably won’t see a significant drop in prices. However, price increases may be modest compared to previous years.
While regular commercial properties may experience small price decreases, the demand for property in Cape Town means that prices should rise quickly once the recession ends.
For savvy property investors, this is an excellent opportunity to buy commercial spaces at competitive prices.
Commercial property may still outperform other asset classes
In a recession, investors have limited options when it comes to earning a good return on their capital – and commercial property still offers one of the best ROIs out there.
Shares and other financial investments tend to have unpredictable swings during a recession, while bank accounts barely keep up with inflation.
In contrast, commercial property is a solid investment with good long-term potential.
Property prices tend to fall less than the value of shares and other investments during most recessions, offering investors a way to secure the value of their investment.
Passive income – a major perk of commercial property ownership
Office space has a further advantage over other types of investments – utility and passive income. While companies may choose not to pay dividends to shareholders during lean years, a commercial property will produce monthly rental income over the same period.
Larger office spaces that struggle to attract individual tenants can be repurposed as shared office space or rented by the day or half-day as meeting spaces. This ensures a steady stream of income – even when business conditions are less than ideal.
The recession won’t last forever – and neither will this buying opportunity
South Africa is working hard to overcome its economic challenges, with government and the private sector joining forces to restore growth.
The current mild recession is an opportunity to invest in future prosperity – especially in Cape Town, where long-term growth prospects still look excellent. The Cape Town commercial property market is large, well-developed and offers a variety of property types and grades of office space.
If you’d like to take this opportunity to invest in Cape Town’s commercial future, contact us today. Our team of area specialists is on hand to advise you.