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Views on the property industry since 2008

In volatile property markets, finding the right partner is key to sustainable success

By Frank Berkeley, Managing Executive: Nedbank Corporate Property Finance

Since 2008, the global economic crisis has prompted a number of challenges, and no small amount of change, across all financial market sectors; and commercial property finance is no exception. While the property sector in general has largely weathered the economic storm fairly admirably, a combination of factors has driven fundamental changes to the international and South African commercial property finance landscapes.

Frank Berkeley, Managing Executive: Nedbank Corporate Property Finance

Frank Berkeley, Managing Executive: Nedbank Corporate Property Finance

After spiking between 2007 and 2009, short-term interest rates dropped fairly quickly and levelled off around 2011. While, until recently, these rates have remained flat, they have still been a constant source of uncertainty and speculation over that time – neither of which can be said to be good for property market stability.

Another major factor influencing the property markets is the very low GDP growth that South Africa has experienced during the last few years. The demand for space is a function of economic activity and very simply, if the economy is growing very slowly, then the demand for new space is limited which constrains the development of new buildings.

One of the consequences of this challenging commercial property environment has been relatively high vacancy levels, particularly in some of the country’s CBDs, in the past six years. This has understandably led to a slowdown in new office developments and more of a focus on revamping or repurposing existing commercial spaces. Linked to this, growth in annual rental increases for commercial space has slowed and downward rental reversions have become more common, thereby limiting the investment appeal of the commercial property sector.

These factors, amongst others, have resulted in the property lending industry adopting a somewhat more conservative approach in recent years, adding further to the finance constraints experienced by those seeking to capitalise on the opportunities that do exist in the sector. However, the key to leveraging these lies less in trying to predict future market movements, which has repeatedly proven a challenging exercise, and more in making sure you’re aligned with the right, value-adding partners.

This is particularly true in the area of property finance, where the importance of partnering with a financier that understands the markets, knows your business, and has clearly invested in the South African property industry for the long haul cannot be over-emphasised.

One of the most frustrating consequences of every economic downturn, particularly for those whose business success and livelihood is tied to the commercial property sector, is the fallout that this inevitably causes amongst participants in all areas of the property market, but particularly finance. As role players with short-term views and little commitment reduce their exposure to, or even leave the sector, this has the effect of further destabilising an already vulnerable market.

When this happens, it is imperative for any property stakeholder to make sure that they are partnered with a finance provider that has a proven and consistent track record, a clear understanding of market fundamentals and cycles, and insights into the risks and opportunities these present.

Of course, the fact that a finance partner possesses this type of market knowledge doesn’t necessarily ensure property investment success for its clients. Of greater importance is an ability to apply these insights to the specific and unique needs and objectives of clients, in order to consistently deliver the best, unbiased advice.

Achieving this demands the combination of a commitment to fostering and maintaining strong client relationships with both the technical ability and willingness to structure innovative and highly attractive finance offerings.

It is only through this combination of factors that a finance provider can provide the stability, security and confidence needed by most property sector investors or developers to ensure their success irrespective of market conditions. For us at Nedbank Corporate Property Finance, it’s a belief founded on personal experience, as evidenced by our involvement in the majority of the largest commercial property deals concluded in South Africa in 2013 and our growth in market share from 36,8% in June 2011 to 41% in March this year.

So, while challenging markets and an uncertain future obviously raise the temptation amongst property sector participants to simply focus on price competitiveness, this is only one small part of the long-term success equation. Achieving sustainable success as a property investor, irrespective of market conditions, requires that you have the confidence to pursue and maximise your opportunities – and only the right finance partner with proven expertise and a clear desire to help facilitate your success can enable you to do that.

By Frank Berkeley, Managing Executive: Nedbank Corporate Property Finance