Johannesburg - Offices are the worst-performing sector of the commercial property market for first half 2009 with total returns slipping to 1.6%, down from 8.1% year-on-year, figures released on Thursday by IPD South Africa showed.
Retail and industrial property both delivered total returns of 4.1% over the same period. This brought the average for the three sectors of the commercial property market to 3.4%, down from 7.3% in 2008. The IPD SA Property Bi-Annual Indicator tracks the performance of physical commercial property worth about R94bn.
Although the SA commercial property market has until recently weathered the global real estate slump better than most of its international counterparts, IPD figures confirmed that bricks and mortar investments in SA have finally also succumbed to falling values.
According to IPD's first-half 2009 calculations, capital growth slipped into the red for the first time since IPD started tracking the performance of property in SA in 1995.
Values for the three sectors fell by an average -0.8% for the six months to June 2009. The office sector was the biggest loser, with negative capital growth of -2.7%. Industrial property values were down -0.4%.
Shopping centres, however, have proved somewhat more resilient than offices, factories and warehouses and represent the only sector to still record positive capital growth (+0.1%) in first half 2009.
Stan Garrun, MD of IPD SA, said latest performance figures clearly indicate that economic pressures are now also taking their toll on the SA property market. "Re-pricing is taking place and income is under pressure.
"All sectors are being affected in one way or another. Performance is now well below last year and the stellar average annualised return of 22.4% achieved between 2006 and 2008."
'To let' signs abound
Analysts said the poor performance of the office sector has not been entirely unexpected, as SA's prime business hubs have in recent months become increasingly dotted with "To let" signs.
For instance in Sandton, SA's biggest business district after downtown Joburg, the office vacancy had surpassed 7% by end-June, up from 5.7% in December 2008, according to the South African Property Owners Association's latest office vacancy survey. That level was last seen in early 2006.
A similar trend is evident in popular business nodes in Cape Town, Durban and Pretoria.
Property companies with large office portfolios have confirmed there has been a marked increase in vacancies in recent months. Growthpoint Properties, SA's biggest listed real estate player, has seen the vacancy in its R12.4bn office portfolio nearly double in the 12 months to June, from 4.9% to 8.9%.
About 108 000m&2sup: of new office space - three times the size of Growthpoint's imposing new head office in Sandton Drive - has come on stream over the past nine months. A third of this space is still standing empty.
Analysts, however, believed that commercial property returns are unlikely to weaken much further over the coming months. Anton de Goede, property analyst at Coronation Fund Managers, said the likelihood is small that the trend of negative capital returns emerging in first half 2009 is the start of a prolonged and excessive downward cycle.
"Weakness within the SA commercial property market should only continue for the next six to 12 months as limited new building supply and a potential pick-up in economic activity bodes well for a recovery in due course."
- Fin24.com