South African property and construction executives are highly optimistic about business conditions this year.
Grant Thornton’s International Business Report revealed that 76 percent of local executives in these sectors expected a rise in turnover this year, 59 percent predicted improvements in selling prices, and 64 percent felt the profitability of their businesses would improve. In addition, 39 percent of business owners planned to employ more staff during the year.
Lee-Anne Bac, the head of property and director of advisory services at Grant Thornton Johannesburg, said yesterday that this was a sign businesses were seriously moving into a recovery phase. She added that optimism was returning to the global property market, but with a cautionary approach.
The report revealed that 42 percent of businesses globally were optimistic about the sector this year, led by south-east Asia (78 percent), Latin America (60 percent) and North America (56 percent), while Europe (33 percent) was polarised between persistent pessimism in the south and growing optimism across the northern and eastern parts.
The report revealed that internationally an increasing proportion of property and construction businesses were expecting to grow revenue and profitability compared with this time last year.
Clare Hartnell, the global leader for real estate and construction at Grant Thornton, said increasing activity in the property sector was a strong indicator that the global recovery was gaining momentum but it would not take much to destabilise these improvements.
“The main driver for investment in cities anywhere in the world is infrastructure projects. Major developments like transport links, highways, power plants and airports create value and stimulate growth, particularly as urbanisation increases with the growing shift of people into the cities.”
The report revealed that retail property was expected to deliver the best results to investors this year. Offices was the weakest commercial property sub-sector with anticipated increases in vacancy levels.
Investment Property Databank (IPD) South Africa said last week that between 2004 and 2007 a new shopping centre was opened in the country every six-and-a-half days on average and 800 new retail centres had been built since 1995, including 45 regional shopping malls. Its annual property index showed that the country’s investment property sector delivered a 15.3 percent total return last year compared with a total return of 15.2 percent in 2012.
Industrial property led, according to IPD SA, with a total return of 17.1 percent, to marginally outperform retail property at 16.8 percent, followed by offices at 13.6 percent. Despite the number of new retail centres built, super regional centres delivered a total return of 19.4 percent, the sector’s best.
Bac was sceptical about long-term investment in manufacturing and believed investing in certain industrial property was a high risk, but warehousing had huge potential.
“With higher production costs and lower productivity output than China, India and other developing economies, our manufacturing sector is neither efficient nor competitive. As it shrinks, property owners have neither the certainty of long-term tenancies, nor sustainability of returns.”