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Johannesburg – Growthpoint Properties [JSE:GRT], South Africa's biggest listed property group, said on Wednesday the sector underestimated the effect increases in rates and electricity would have on rental income.
CEO Norbert Sasse said at a presentation of the group's annual results to end-June the rise in rates and electricity tariffs are having a major impact on tenants.
"It's pushing up the total cost of occupancy," said Sasse. "Tenants have a ceiling on how much they can absorb."
The R24bn group reported distribution growth of 5.8% for the period under review. The results showed the rate bill increased by 31%, while electricity costs soared by 34%.
"This is staggering," said Sasse.
The group's portfolio consists of office, industrial and retail properties in South Africa and Australia. The bulk of the value of the South African properties, which makes up 86% of the total lettable space, is situated in the major metropolitan areas. Growthpoint's Australian portfolio consists mainly of high quality distribution and logistic warehouses.
The group also reported it will avoid new developments next year. Growthpoint vacancies increased to above-average levels due to a host of new developments coming on to the market, said Catalyst Fund Managers analyst Zayd Sulaiman.
"We're not building any brand new buildings," said Sasse. "We'll be refurbishing and redeveloping our existing portfolios."
According to Sasse, large retailers like Woolworths and Edcon are also concentrating on improving or extending their space in existing centres.
The group's vacancies increased from 5.4% to 6.4% during the period, with the most drastic increase in the industrial segment of 2.3%. Office vacancies remained high at 9%.
Sulaiman said the group may have to accept lower rentals and short-term leases to fill the empty space.
"This is a tenants' market - they have flexibility, they have choice; this can put us under pressure for renewals," concurred Sasse.
The group reported around 18% of its leases are coming up for renewal this year.
A distribution of 121.2 cents per linked unit was declared for the full year.
- Fin24.com
CEO Norbert Sasse said at a presentation of the group's annual results to end-June the rise in rates and electricity tariffs are having a major impact on tenants.
"It's pushing up the total cost of occupancy," said Sasse. "Tenants have a ceiling on how much they can absorb."
The R24bn group reported distribution growth of 5.8% for the period under review. The results showed the rate bill increased by 31%, while electricity costs soared by 34%.
"This is staggering," said Sasse.
The group's portfolio consists of office, industrial and retail properties in South Africa and Australia. The bulk of the value of the South African properties, which makes up 86% of the total lettable space, is situated in the major metropolitan areas. Growthpoint's Australian portfolio consists mainly of high quality distribution and logistic warehouses.
The group also reported it will avoid new developments next year. Growthpoint vacancies increased to above-average levels due to a host of new developments coming on to the market, said Catalyst Fund Managers analyst Zayd Sulaiman.
"We're not building any brand new buildings," said Sasse. "We'll be refurbishing and redeveloping our existing portfolios."
According to Sasse, large retailers like Woolworths and Edcon are also concentrating on improving or extending their space in existing centres.
The group's vacancies increased from 5.4% to 6.4% during the period, with the most drastic increase in the industrial segment of 2.3%. Office vacancies remained high at 9%.
Sulaiman said the group may have to accept lower rentals and short-term leases to fill the empty space.
“Tenants may over time find that their total cost of occupancy has increased to
such an extent that when leases expire landlords may find it very difficult renegotiating the new rental," he said.
"This is a tenants' market - they have flexibility, they have choice; this can put us under pressure for renewals," concurred Sasse.
The group reported around 18% of its leases are coming up for renewal this year.
A distribution of 121.2 cents per linked unit was declared for the full year.
- Fin24.com
