Amidst a depreciating rand and the economic troubles besetting the country, businesses and investors vested in the commercial property industry have been concerned about constricted tenant demand and lacklustre portfolio returns.
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A result of diminished GDP forecasts and business confidence the weak currency is certainly not ideal for the country’s economic health in any sector, despite the proposition that a devalued currency translates into competitive advantage on the basis of cheap exports – that is, heightened demand for a country’s goods, and thus job creation and economic growth. Only true to a slight extent and when there is significant external demand (normally independent of export prices), the proposition has the collateral effect of eroding domestic produce values and standards of living. The quantity of exports may increase, but imports at the same time will cost more – oil, capital equipment and machinery vital to the infrastructure of any industrialised society. A downturn in manufacturing productivity will likewise have a downward effect on demand for industrial property.
The effects of a depressed currency would extend to existing foreign investment within the country, direct or portfolio, as a loss of value in investments occurs. Although concerns that the withdrawal of such funds would hamper economic performance are well-founded, it must be noted that foreign investment accounts for only a small part of business growth within the country. Indeed, in the commercial space sector, the vast majority of developments remain locally driven and funded. Added to this, investor sentiment about Africa’s growth prospects as a whole remains in fact quite high, fuelled by the developing middle classes, rising consumer spending, and thus the need for quality space to accommodate all types of commercial activity (particularly office and retail). The sub-Saharan region altogether is one of the most rapidly developing as it catches up to world-class standards, with 13 of the 20 fastest-growing economies over the next five years projected to be from this region.
Cape Town office market performance update
An industry report covering the Cape Town office market for Q2 2015 highlighted what is likely an upward trend, as rental performance and the pace of development projects improved. The vacancy rate dropped from 9.2 to 8.1% – the lowest amongst the metropoles surveyed countrywide by SAPOA. The largest declines in vacancy were seen in the CBD (with the conversion of Triangle House to residential accommodation), Rondebosch, Claremont, and Bellville (the three suburb nodes are dominated by Grade A space).
Rental returns improved by an average of 5.7% y/y (much of the growth owing to demand for A-grade buildings), while a number of state-of-the-art office blocks are on track to be completed by year’s end or early 2016. Century City continues its winning streak with Bridge Park, Waterview Park 4, The Annex, The Apex, and The Matrix; for Claremont, the brand new Citadel; while the Waterfront is set for the opening of The Pavilion in Q3 2015.
The steady pipeline of developments and demand in the Cape contrasts with the national trend, pointing to the fine performance of the region and its ability to stand on its own two feet.