Signs of recovery evident in retail property market

"Retail sales for May increased by a higher than expected 4.6% compared to May 2009 (still pre World Cup), and some of SA's major mall owners, including JSE-listed property funds and institutions, agree that in recent months there have been some positive changes regarding trends in consumer spending and the demand for space at retail centres," she says.

As the retail sector is positively influenced by the manufacturing sector, Van der Walt says it is encouraging to note that manufacturing production increased 7.9% in May compared to May last year.

Setbacks

She says while there are some reported improvements in the property market, setbacks continue.

The latest statistics on the total number of liquidations for May show an increase of 35.7% over those in May last year.

Unemployment rose to 25.2% in the first quarter of this year. Coupled with this, rising electricity costs and municipal charges, as well as possible higher fuel prices, are all having a negative affect on disposable income.

Van der Walt says that while the ratio of household debt to disposable income fell from 79.8% in the fourth quarter of last year to 78.4% in the first quarter of this year, this reduction may be less when other increases are taken into account. While the, at 4.6%, is still within the Reserve Bank's target range of 3%-6%, the increases in electricity tariffs and municipal charges are considered the biggest threat to the inflation rate and may lead to higher interest rates.

Vacancies

"Most property owners are experiencing some strain from increased vacancies and lower rental collection due to increases in liquidations, unemployment and operating costs, and we anticipate this trend to continue for the next six to 12 months," she says.

"Generally, the commercial property market is still under pressure and it may be a while before the situation begins to improve significantly. But vacancies are expected to start declining towards the end of the year as a result of the reduction in the number of new developments entering the market."

The current economic situation in SA and the world, although improving somewhat on last year, is still putting great pressure on commercial and retail property owners, who are seeing significant pressure on commercial property values.

Statistics show that rentals are down and vacancies up, which has major implications for rental growth, the main driver of optimistic valuations of commercial property.

Certain retail centres are feeling the pressure as consumers keep their belts tightened. Some retailers have shut shop or moved to cheaper premises, leaving rental vacancies that landlords can ill afford.

Prioritise

Spire Property Management MD Marc Edwards says landlords need to make tenant retention in retail, commercial and industrial property their number one priority, as the biggest threat to property owners is that tenants will (as a result of higher market vacancies) be offered a better deal elsewhere and not renew their lease.

"This has a negative effect on property values, given the likely vacancy a tenant's departure will create," he says.

"With a vacancy and having to source a new tenant come the costs of increased commission payable to property brokers as well as high installation costs. An effective discussion with existing tenants, listening to their wants and needs and accommodating those where possible, is generally a far more cost effective and prudent approach," says Edwards.

"Professional property managers act as a conduit between landlords and tenants, remaining close to the tenants at all times and knowing what is going on in their businesses and understanding their problems," he says.

Source: Business Day