Commercial Property Investments Decelerate as Owners Hold on to Value
The latest research from Jones Lang LaSalle (JLL) SA shows that commercial property investment activity slowed in 2014, with the overriding contributing factor being the low supply of investment properties. Covering 2011 to 2014, with specific reference to the office, industrial and retail sectors, the report focuses primarily on major transactions. The total purchase of office, industrial and retail properties by listed REITs declined by 43.7% to an estimated R13.8bn. In line with the overall decline in transaction value, the total number of investment transactions declined from 148 to 112.
Zandile Makhoba, head of research, South Africa, at JLL, says: “Last year was a prime example of unfavourable economic conditions: GDP growth slowed, the economy saw credit rating downgrades, currency weakness and rising inflation all working against investor confidence in the economy. Given these conditions, it is not surprising that commercial property investment activity slowed. It is important to note that, more than a shortage of buyers, the slowdown was mainly as a result of a decline in willing sellers of commercial properties in the prevailing climate. Holding cash is a disinvestment in a high-inflation and weak-currency environment, and with fewer options for alternative investments, investors are preferring to hold the value in property assets.”
Key outtakes from the report include:
• The industrial sector opposed the general downward trend in investment with a notable year-on-year increase, even when correcting for the large sale between Macsteel and Redefine.
• 2014 also saw very little cross-border investment in the commercial property market in comparison with previous years.
• Total investment value declined; however, the total value of GLA invested in increased during the year. Hence the overall investment value declined to R8,524/m² in 2014 from R16,145/m² in 2013. Again, the industrial sector countered the trend, showing an improvement in this regard.
• Economic conditions and new developments might slow the pace of investment activity in 2015, but the trend is not likely to be balanced across the sectors.
“Looking ahead to 2015, the question is, which property owners are most likely to be more willing to let go of assets in the current climate? The bottom line is that alternative investment options remain few and far between for the longer-term investor,” Makhoba says.
“From an economic growth perspective, there is little to suggest that conditions would be much more improved from 2014: the Treasury has forecast a muted GDP growth of 2.0% for the 2015/16 fiscal year, we are battling to prevent further credit downgrades and the currency continues to struggle, while the turn in oil prices suggests that inflation will remain a concern for economic activity and investment returns.”