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Listed property returns likely to fall in 2013

The South African listed property sector is unlikely to maintain recent annual returns of more than 30% this year‚ as the office market remains subdued and the possibility of significant interest rate cuts is low‚ according to industry representatives.
Growthpoint's chief executive Norbert Sasse said on Wednesday (9 January) that last year was "another tremendous year for listed property"‚ with the sector producing total returns of 35.9%.

"This time last year nobody predicted that listed property could have another year of returns of more than 30%‚ so it will be extremely difficult for listed property to achieve these kinds of returns again in the absence of a further reduction in interest rates.

"Clearly the key driver for another year of performance similar to what we saw last year would be a further drop in interest rates‚" Sasse said‚ adding that no major increase or reduction in interest rates was expected this year.

"We're expecting a reasonably stable outlook in terms of the capital movement of the listed property sector where income growth of between 5% and 8% would translate into total returns of between 10% and 16%‚" he said.

He says the underlying fundamentals in office space remain challenging‚ although the retail and industrial sectors seemed to be "holding their own".

Sasse said the relatively low interest rate could result in "quite a lively year for the listed property sector from a merger and acquisition and listing perspective"‚ with smaller companies looking to consolidate their positions.

Resilient Property Income Fund chief executive Des de Beer said while retail property was buoyant‚ the office market was expected to remain "weak" this year‚ with the possibility of further deterioration.

Industrial property was likely to remain stable‚ De Beer said.

The outlook for retail property was positive‚ and the regional malls "will probably continue to outperform"‚ De Beer said.

Vukile Property Fund chief executive Laurence Rapp said Vukile was expecting "a steady year"‚ and while the office sector was expected to be "flat to marginally better"‚ retail "will hopefully continue in the same vein as the past year or two".

If the appetite for additional listings in the sector began to wane‚ this was likely to result in increased corporate activities among existing listed companies‚ Rapp said.

South African Property Owners Association chief executive Neil Gopal said while listed property may not see the same returns‚ "property will outperform bonds and cash".

But Gopal said that with a tougher economic outlook‚ "landlords will have to find interesting ways to look after existing tenants and ways to entice new ones".

Org Geldenhuys, the managing director of property development and marketing company Abacus Divisions said that the commercial property sector was likely to stagnate this year‚ with minimal rental increases at best.

According to Catalyst Fund Managers‚ the outlook for listed property distribution growth this year "remains reasonable and the sector is likely to deliver inflationary type growth in income distributions".


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