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Commercial property takes a tumble

Johannesburg – Building activity in the industrial and shopping industry has taken a massive dip as constructors are constrained by tight-fisted banks and a lower demand for space from tenants.

Statistics SA (Stats SA) reported on Wednesday that the number of building plans passed from January to May 2010 dropped by 15%, compared to the same period last year.

Non-residential building plans passed accounted for the biggest chunk of the contraction, with a R3bn or 40% drop compared to last year.

"The building activity is correlated to the overall economic growth," said Coronation Fund Managers [JSE:CML] analyst Anton de Goede. "There is usually a six to 12-month lag from when growth in economic activity turns positive before commercial property activity improves again."

According to De Goede, the drop in non-residential building plans passed is due to a combination of banks still being uncomfortable with the financing of speculative developments, and a still-low demand for additional space from the private sector.

Gauteng saw the biggest contraction – 14.9% - of a total contraction of 15.4% for the nine provinces combined.

"The only areas experiencing speculative development in Gauteng are the Gautrain node areas, Rosebank and Menlyn. Otherwise development is tenant-driven,” said De Goede.

Stats SA also reported the contraction in residential building activity continued up to May 2010, but a slower pace of contraction was evident in that month. Residential building plans passed dropped by 3% compared to last year.

"Although the improvement was only evident in the past month or two, this might be an early indication of expectations that demand for new housing may pick up towards the end of the year," said Absa Group [JSE:ASA] senior economist Jacques du Toit.

The real value of plans approved for new residential buildings was down by 6.8% year-on-year to R6.96bn from January to May this year (R7.46bn in the same period last year).

The real value in new residential buildings completed contracted by 24.5% year-on-year in the first five months of the year.

"The residential building sector is expected to continue experiencing tough conditions in the near term," said Du Toit.

 - Fin24.com

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