Johannesburg - The commercial property market is developing into two distinct sectors, according to Auction Alliance CEO
Rael Levitt.
"With the lowest interest rate in decades, investors are scrambling for returns they can't find in traditional savings facilities.
"With prime at 9%, investors are increasingly looking to well-let commercial property to show them returns closer to double-digit numbers."
Levitt says that this means investors are flocking back to commercial property, which will hopefully not only show decent yields, but have the potential to attain capital growth.
"This is the trophy market that investors are fighting tooth and nail to secure."
Levitt adds that if you place a well-let property with a decent tenant on the block, the demand can be ferocious, especially in sectors like retail shopping centres.
"We have never seen demand like this for small suburban shopping centres, with the lowest yields being paid in decades."
According to Levitt, these well-let centres are part of the classic "trophy" market.
Other trophy properties are those that have the ability to let easily, and are normally in prime nodes.
"The trophy segment of the market is going through massive demand, with less and less supply.
"One must not forget that many trophy properties are tightly held by institutions, which are not quick to offload them."
The listed-property sector showed great returns in 2010 and these companies are certainly not going to be dumping the quality stock that gives their investors these whopping yields in a weak global property environment, Levitt explains.
On the opposite end of the spectrum, there are many commercial properties that are simply traumatic for their owners and financiers.
"This includes buildings that are in marginal, over-supplied areas, and have no chance of attracting good tenants."
During a more buoyant market, these buildings attracted buyers, but now the demand has weakened and it is difficult to attract decent prices, Levitt adds.
"The trauma grows with vacant commercial land, which has negligible interest unless situated in prime locations."