Advice and Opinion

Urban renewal, Chinese FDI, new asset classes: what to expect from property this year

Marna van de Walt, CEO, Excellerate Property Services.

Excellerate Property Services CEO Marna van der Walt says fasten your seatbelts for an exciting ride from the property sector during a year that is full of potential.

“We’re seeing a lot of new dynamics coming into play this year, from Chinese Foreign Investment, to the repurposing of city buildings around the country, and an opportunistic listed property sector taking its first steps into investment in new asset classes and new African countries,” reports van der Walt.

One of the most exciting trends emerging in the property sector is the repurposing of CBD buildings and the re-energising taking place in some South African cities. “These projects are going ahead in areas where there has been some urban decay. It’s great to see the opportunities that are being created by repurposing CBD buildings, especially in cities like Durban and Johannesburg,” says van der Walt.

“In Cape Town, there is a big move toward greening in the city. Many property developments, redevelopments and upgrades and focused on sustainability and efficiency, and there are many more opportunities for this,” she adds.

Another force emerging on South Africa’s landscape is the increased level of Chinese investment, especially in the construction and property sector. “In 2013 and 2014, several deals were stuck, which will go ahead this year. These investors are injecting funds into urban peripheries and promoting development in the more rural nodes.”

When it comes attracting FDI for the property sector, van der Walt believes, South Africa is at an advantage on the continent, within the present context. Excellerate delivers integrated property services across Africa.

“Property investment in other sub-Saharan African countries may still be on the map, but this will be influenced by each company’s appetite for risk,” says van der Walt. “There seems to be an escalation of political and religious unrest in certain countries, as well as medical risk in West Africa. This may influence decisions to proceed with certain African investment policies.”

However, she believes South Africa remains in a strong position to attract investment. “South Africa has always been the strongest country in Africa in terms of attractiveness to foreign direct investment (FDI). It attracted 24% of all FDI between 2007 and 2013, and may perform even better going forward,” comments van der Walt. She also points to the the World Bank’s Doing Business Report 2015, which ranks South Africa second highest on the African continent, for attractiveness and ease of doing business on the African continent.

She does note, however, that the year will not be without challenges for South African property, with the dark cloud of load-shedding and the electricity crisis casting a long shadow on our economic growth. Excellerate Property Services provides fully integrated and self-performing property solutions.

Van der Walt believes the star commercial property performer will be the retail sector, which will outperform the office and industrial property in the coming months.

“Consumers are enjoying a little relief with the drop in petrol price, and there’s a decline in South Africa’s household debt service risk, both of which bring welcome benefits for retail,” says van der Walt. “The economy is also telegraphing some positive signals with improving exchange rates and a better trade balance.”

The manufacturing and industrial sector will remain under pressure with South Africa’s continued power supply issues plaguing its productivity. “While we eagerly await an effective solution to the Eskom electricity crisis, I have no doubt that, with the determined spirit of South Africans, we can also expect to see some inventive solutions to the challenge.”

Van der Walt adds prime offices are in top position in the two-tiered office market. There is a demand for A-grade space in certain nodes. Areas such as Rosebank, Sandton, Umhlanga and Century City are still attracting new international clientele. The market for B- and C-grade office property remains stagnant. In this sector, new developments will be mostly tenant-driven, with few speculative projects.

Excellerate is also seeing its listed property clients diversifying into new subsectors, with residential housing foremost among these, including student accommodation. But, the sector’s search for advantageous opportunities goes even further, such as medical and storage facilities.

Van der Walt notes the sector isn’t only looking for new investment opportunities, but considering all areas that can add value to their businesses. “Property owners are seeking new avenues for income from their assets, such as building sources of non-GLA income streams. They’re looking to offset pressure on rentals by focusing on new ways to optimise cost-efficiencies. For cost reductions, bundled services are increasingly being recognised as an effective way of achieving cost savings,” says van der Walt.

All-in-all, van der Walt concludes: the property sector will have two focuses in the coming months: keeping the basics in excellent order, and finding the next big thing, or big things, to drive property performance.