Lower end commercial tenants score

Johannesburg - Tenants of retail, office and industrial properties are still in the pound seats as the commercial sector struggles with an oversupply of space in the lower end of the market, a new report showed on Thursday.

SA's largest commercial property manager, Broll Property Group, said in its annual report tenants are shopping around and becoming more sophisticated in their comparisons. The Broll Property report showed rentals in the industrial, office and retail segments are flat or falling in the case of lower grade buildings.

"We also found that landlords are becoming more realistic," said Dave Alcock, Broll's director of national broking.

He said landlords are more aggressive in replacing defaulting tenants. The report showed a significant increase in new commercial sector tenants in the last quarter.

CEO Malcolm Horne said the older, established malls were still doing well in maintaining their foot count and trading density. "Newly developed, community and smaller centres are feeling the strain due to the decrease in consumer spending," he said.

Stats SA figures released on Thursday showed that the number of retail building plans passed for 2009 declined by 15% compared to 2008.

The office sector is still floundering, according to the Broll report. Vacancy rates in all sectors of the office market increased during 2009, except for those in CBDs. Vacancy rates in Gauteng, KwaZulu-Natal and Cape Town are between 10% and 12.5%, the report showed.

"We're in a market where all the corporates are cutting costs, which means a lot of compression is taking place," said Horne. "So tenants need offices with more parking space."

Capitalisation rates for the office property sector moved out by between 1% and 1.5% due to rising vacancy rates and stagnant rental growth, the report said.

There was growing interest from property developers and managers in West Africa, said the report. According to Horne and Alcock, there is "tremendous potential" in the rest of Africa.

"Demand for shopping malls has triggered significant projects in Nigeria and Ghana. Many of these developments are anchored by SA retailers such as Shoprite and Game," the report said.

Broll Property Group is a property management company with over R62bn in assets under management.

 - Fin24