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Increase in rate of commercial property development

Oct 02 2017 18:07
Carin Smith

Cape Town - Despite SA’s struggling economy, there has been a noticeable increase in the rate of commercial property development in the country’s main metropoles this year, according to Elias Tzouvanni, co-director at Nexus Property Group.

This has particularly been the case within the Cape Town and Johannesburg central business districts.

Tzouvanni says this increased commercial development is driven by a handful of large corporates operating within the professional services industry that are either constructing their own buildings, or who are developers building commercial office space for corporates to tenant.

This trend then creates large vacancies in older, secondary commercial properties these businesses once occupied.

“Even in a slow market, there will always be activity. The important thing, from an investment perspective, is to always take the bigger picture into account and avoid getting swept up in alluring high-cost commercial developments that may not be conducive to the current market,” he says.  

“As a result of these companies moving into new developments, there is a lot of property being released into the market by listed property funds, which opens up a lot of opportunity and creates a strong secondary buyer’s market at lower and more sustainable pricing for tenants and companies wanting to buy their own offices.”


Johann van der Merwe, Rawson Properties Helderberg franchisee and commercial asset manager says established property investors looking to diversify their portfolios could reap significant rewards by expanding into the commercial side of the market.

“Commercial assets are often overlooked by investors who are active in the residential sector due to a lack of knowledge on how to unlock their full potential,” he says.

“There is a learning curve moving between the two sectors – commercial and residential investments have plenty of differences – but that doesn’t mean commercial investments are off limits if you’re not an expert in the field.”

When it comes to getting the most from your new investment, however, there are things an investor can do regardless of whether or not a broker is involved, he says.

These include to improve the “curb appeal” of the property to attract high quality tenants willing to pay premium rental amounts; growing net operating income by identifying a commercial property with room for improvement; optimising the gross lettable area; considering properties with rezoning potential and implementing a strong management team.


Jeremy Lang, regional general manager at Business Partners, says in 2016, industrial property was the top performing sector in the SA property market, with a total return of 13.6%.

Over the last 10 years, it has proven to be a relatively stable and resilient asset class in terms of generating positive returns over the medium to long-term,” says Lang.
“As such, both commercial and industrial property are good investment options for small business owners to consider in current economic conditions.”

Lang says that quality commercial and industrial property in SA continues to generate positive risk adjusted yields, especially in the larger metropolitan areas, and that property is generally a stable asset class as it is less exposed to shocks in the global economy.

Factors to look for in his view include timing, affordability, financing, due diligence, not relying only on inflation and diversification

Solar power

Charl du Plessis, head of project development at EP Solar, a division of Energy Partners and part of the PSG group of companies, says commercial solar in South Africa has received an increased interest from the property market, with especially large property groups actively searching for alternative energy solutions.

The overall trend in the cost of solar has been downward, he says. Ten years ago the average payback period of a commercial rooftop PV system was around seven years. It is now very common to see payback periods of less than five years.

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