Commercial property sector remains pressured

South Africa’s commercial property sector is expected to remain under pressure for the whole of 2013 on the back of lacklustre economic performance.

This is according to the annual Broll Property Report released recently. Malcolm Horne, CEO of Broll Property Group,  said “The Broll Property Report 2013 shows the outlook for an upturn in world growth is now brighter than in 2012. However, many of South Africa’s international trading partners are experiencing little or no economic growth, in a sluggish global economy, especially the Eurozone.”

“The research in the Broll Property Report shows that landlords are likely to face a difficult year as they cope with rising costs on one hand, and an income squeeze on the other. This is exacerbated by economic conditions as well as the trend among tenants towards more efficient space use,” said Horne.

However many investors are realizing that the time to re-enter the property investment sector is starting to look positive, although securing finance from banks is likely to remain a constraint, said Horne.

He added that the report reveals a continued slowdown for the retail property sector. “The pressures from a persistent downward trend in real disposable income growth, weak consumer confidence and job losses are all likely to continue for the rest of 2013.”

With inflation set to remain at the upper levels of the three to six percent target range set by the Reserve Bank, the report notes that Government is likely to curb growth in its wage bill. It is also expected to contain the growth in spending because of reduced growth in tax revenue.

“Forecasts suggest slightly slower growth in household consumption spending in 2013 and durable goods sales are likely to suffer,” said Horne.

As closely influenced by the manufacturing and mining sectors, the outlook for industrial is not exciting. Manufacturing and mining production decreased last year on the back of reduced demand, both locally and internationally. The mining sector was also hard hit by labour unrest and political uncertainty around the nationalisation debate.

Soft demand will continue to define the office sector in 2013. However popular niche nodes like the Sandton CBD may remain healthy.  “Downward pressure on rentals and increasing operating costs continue to challenge the sector,” said Horne.

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