The fortunes of the South African property market this year, like last year, will once again be inextricably linked with the economy and other markets, according to Frank Berkeley, the managing executive of Nedbank Corporate Property Finance.
This meant local property would not soon enjoy the uptick that was becoming apparent in some global property sectors, Berkeley said.
While rand weakness could have translated into massive opportunities for South Africa’s economy to benefit from exporting, production challenges faced by a number of industries meant the country remained largely unable to leverage those opportunities to sustainably improve its economic position, he said.
On the positive side and despite a very challenging 2013, Nedbank Corporate Property Finance enjoyed a consistently strong performance characterised by a number of excellent financing opportunities.
Berkeley was confident that this calendar year should offer similar opportunities.
He said even a cursory glance at the property finance division’s book revealed the quality of clients and deals enjoyed by the business, despite the difficult operating environment.
In the past year, Nedbank Corporate Property Finance closed some of the biggest deals in South Africa, including the R1.7 billion Baywest Centre in Port Elizabeth, the R1bn Mthatha Mall and the massive R3bn Mall of Africa development in Waterfall City, Midrand.
Berkeley was confident that there would be opportunities available to those who were willing to work for them, albeit fewer than would have been the case had South Africa’s economic fundamentals looked healthier.
One of the most significant challenges this year had less to do with economic and market fundamentals than with the fact that the property finance sector had been, and would remain, extremely competitive.
“While some quality property deal opportunities will almost certainly come up in the next 12 months, the number of quality finance houses vying for these deals will mean developers will have more choice than ever before. And they [developers] will make those choices based on far more than price competitiveness alone,” he said.
At a sector-specific level, there was no particular area that had the potential to stand out from the rest this year.
However, Berkeley expressed particular concern about the potential for office vacancies to increase appreciably. He pointed to the consolidation trend, which was characterised by an increasing number of large organisations constructing their own centralised buildings and relocating staff who were previously housed in leased offices.
“While this is by no means a new trend, without evidence of sustainable economic recovery and growth in South Africa, it may become cause for concern due to its potential to drive relatively uncomfortable levels of long-term office vacancies in some parts of the country.”
Berkeley said that despite talk that the International Monetary Fund would upgrade its prediction for South Africa’s growth this year, he cautioned against putting too much stock in this halfway through the first quarter.
He was not overly confident that the growth required to create a sustainable improvement in commercial property would be on the cards soon.
“However, despite this somewhat bleak outlook, it’s definitely not all doom and gloom for South African property this year.
“While the challenges may be significant, Nedbank Corporate Property Finance has consistently proven in the past that challenges often present smart investors, developers and finance providers with the potential to create valuable long-term opportunities.”