Property investors and developers are upbeat about the South African commercial property sector in 2013, despite analysts’ and property professionals’ expectations that the market will remain sluggish.
This is according to Gary Palmer, CEO of Paragon Lending Solutions – a leading second-tier lender – who says that the company has witnessed a surge in clients looking for funding for growth, indicating that they are more positive going into 2013, compared with last year. “Our research has revealed that clients are actively exploring property deals again and are forecasting steady growth in their respective businesses.”
There has been mixed sentiment by industry experts on the outlook for this year with the general consensus that the commercial property market is only really expected to start picking up in 2014. However, Palmer says that with interest rates remaining unchanged, which is good for raising capital, the current economic climate is providing opportunities for developers and investors, but they need funding to get off the ground.
“There was strong demand in 2012 in the retail sector, which experienced low vacancies. There was particular demand in this sector for regional shopping centres, petrol stations and food chains. Although largely dependent on consumer spending and the local economy, the retail property sector is expected to continue to grow with a number of retailers looking to increase their exposure,” Palmer says.
He adds that the industrial sector had also performed well and is likely to remain stable, having enjoyed moderate rental growth in 2012. “High operating costs and the lack of new major industrial developments are the biggest threats to growth in this sector. There is, however, demand for upgraded operational facilities and convenient access to key transport nodes to reduce fuel costs are factors driving growth in this sector.”
However, Palmer warns that many industry experts are of the opinion that the office sector isn’t expected to recover any time soon, with a high number office vacancy rates that need to be filled. “All the funds seem to be competing with each other on high value properties with blue chip tenants and long leases. The office sector is expected to remain flat with vacancies and retaining tenants proving to be a hurdle property owners need to overcome in 2013, so new developments in the sector would be a riskier move.
“Despite the property market currently looking flat, people are optimistic as the sector remains an attractive alternative investment. Investors with access to capital and the ability to move quickly on a transaction will be able to purchase excellent value in 2013.”
In the listed property market, property analysts expect total returns between 10% – 16%, and although expectations are lower than the total returns of 35.9% in 2012, the listed property sector should be another good year. With continued low interest rates new listings in the property sector are expected with a number of smaller companies increasing their portfolios by buying from listed funds.
Palmer says that investors that want to get into the market need quick financial assistance. “Banks will remain cautious with lending due to low interest rates and turnaround times are slower. Investors should look for alternatives for quick access to short-term funding from second-tier lenders to secure the deal in anticipation of a bank loan,” concludes Palmer.