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A new shopping centre was opened in South Africa on average every six and a half days between 2004 and 2007, according to Investment Property Databank (IPD).
Stan Garrun, the executive director of IPD South Africa, said this week that the country had only three super-regional malls in 1995, but 800 retail centres had been built since then and 45 regional shopping malls built over the last 20 years.
The IPD SA annual property index released on Tuesday showed that the investment property sector delivered a stable 15.3 percent total return last year compared with a total return of 15.2 percent in 2012.
Industrial property led the pack 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 in the past 20 years, super regional centres delivered a 19.4 percent total return, the best in the sector.
Phil Barttram, the vice-president of IPD SA, said there had been an uptick in vacancies at super-regional and regional shopping centres, but these two segments of the retail sector had achieved substantial rental growth.
Barttram said the increase in vacancies was not necessarily linked to the rental growth, noting that these two asset classes or segments were almost irreplaceable in the market.
“It’s very difficult to build and buy a massive super-regional shopping centre, so they have enormous pricing power and are almost pricing their base rentals at will and super-regional shopping centres have come out as the clear winner in terms of capital growth.”
He said the total returns on overall investment property were higher, but essentially moving sideways, which was to be expected in the recovery phase of the property cycle.
He said the performance of the industrial property sector had been a surprise, with light manufacturing/low grade industrial sites achieving a stellar 20.9 percent total return.
Barttram said the office sector was struggling on the back of anaemic economic growth and limited service sector job creation. He added that vacancies were coming down, which should be a sign of recovery.
He said operating cost growth had moderated to 5.7 percent, which was a good sign for property owners, but administered prices, including rates and taxes and electricity, were still the big ogre.
Barttram said electricity, rates and taxes and other administered costs accounted for 40 percent of total operating costs in 2002, but this had grown to 63 percent last year, which was the reason it had become such a focal point.
Garrun said investment property outperformed the minus 0.4 percent all bond index return last year and competed admirably with equity returns of 12.5 percent of the MSCI South Africa index.
The IPD index was based on asset level data collected from a sample of 1 354 properties with a capital value of R213 billion in December last year, which represented about 62 percent of professionally managed investment property.
Garrun said investment property had delivered “a quite remarkable” stable and robust result in an economy where there were still significant headwinds.