Property investors are capitalising on opportunities in decentralised nodes

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"With 2.4% year on year growth in May, retail sales growth has still outperformed for the current year to date when compared to the same trading period in 2014," says Norman Raad, CEO of Broll Auctions and Sales.

"While retail has begun showing signs of saturation with some shopping centres 'stealing' from neighbourhood malls to offer something cheaper and more attractive in this very tight and consumer driven market, astute investors are capitalising on opportunities in decentralised nodes in regions around the country.

"Positively, the industrial sector has shown definite signs of growth with limited availability of good quality logistical warehouses and smaller mini-unit warehouses. In the office market, space is generally over-supplied, although the gap between new office rentals and existing commercial space is ultimately expected to narrow. Generally, there have been noticeable changes in the commercial sector with even greater emphasis on secure tenants and easily let, well-positioned properties."

Sustained confidence

Raad says the recent uptake of a diverse range of retail, industrial and office properties at national, multiple auctions held by Broll Auctions and Sales during 2015 to date reflects sustained confidence in commercial property by both the listed property sector and private property investment market. "Buyers are enjoying the current cycle of opportunities, with experienced investors buying high yielding assets as the commercial market and investors reinvent themselves - on a playing field with different rules.

"It is interesting to separate the listed property sector from the private property investment market, as they have different investment limitations in terms of acquisitions and growth. Right now the funds are aggressively looking outside the borders for sound investments, as well as acquiring development companies in the different sectors to secure pipeline properties, as investment stock is as scarce as hen's teeth," Raad explains.

"We have also seen a number of the funds diversify into the residential market, searching for income and yield enhancing residential units. The demand for student accommodation is also on the radar, but this investment decision depends largely on having management services in place that are experienced in dealing with the residential tenant."

Financing limitations

He says the private commercial property investment market is faced with financing limitations. The banks are asking for 25-50% capital on investment properties and with the just-announced interest rate increase, a variety of different factors influencing investors' decisions. This includes the increase in rates, electricity and municipal accounts, which are not being able to be passed on to tenants across the board.

Taking these considerations seriously into account, the private investor is applying a higher vacancy factor or risk factor when valuing properties. Such factors have definitely had an impact on yield the private investor is willing to pay. Yields have moved into double digits and sellers are having to adjust to a different investing climate.

"Of benefit however is that property investors can now enjoy the luxury of investing in the real estate investment trusts (REITs) that come with the security of good dividends, liquidity and the deferred tax benefit. As a result, and amid ongoing economic challenges, we are seeing the more prudent and conservative investor has moved from owning properties to owning shares in the REITs."