Advice and Opinion

Cape Town’s property outperforming the rest

Cape Town
A view of Table Mountain from the V&A Waterfront in Cape Town.

A “lack of vigour” may be the best way to describe current performance across the full spectrum of property in South Africa. This is according to property economist and valuer Erwin Rode of Rode & Associates, publishers of the quarterly Rode’s Report on the South African Property Market.

Rode uses the phrase to describe the current state of the industrial-property market, where contractions in spending on durables are impacting the demand for locally manufactured goods – and, in turn, manufacturing production lines. The end of the second quarter marked the ninth consecutive quarter in which the consumption of durable goods had contracted, with a 2% contraction seen over the previous year.

Notes Rode: “At this point, these low levels of consumer confidence and the falling amounts of real credit being extended to households do not bode well for the outlook of spending on durables. Therefore, the manufacturing sector – usually one of the support pillars of the industrial property market – will continue to be negatively impacted by this spending environment.”

The situation did, however, appear to be slightly more buoyant in the Cape Peninsula where nominal market rentals for prime industrial space could muster growth of 9%.

Also affected by weak demand is office-rental growth. Overall, the only two geographical areas that could show yearly growth in market rentals were Durban decentralised (at 5%), followed by Cape Town decentralised (with only 3%). Johannesburg decentralised office rentals remained, on average, at roughly their previous-year level.

On the residential front, except for Cape Town, low sub-inflation growth in house prices is expected to continue for a few years. Meanwhile, Cape Town house prices are growing at roughly double the rate in the rest of the country, “but nobody can tell whether this out performance is sustainable, considering the affordability ceiling”.

Meanwhile, nominal flat rentals across the country showed year-on-year growth of just 5%, with the strongest being shown in Durban (7%), followed by Pretoria and Johannesburg (both at
6%), and Cape Town (at 4%).