CAPE TOWN – South Africa’s commercial property market made a “significant turnaround” in terms of investment activity last year by increasing 63.4 percent to R19 billion, according to the JLL Sub-Saharan Africa 2018 Investment review released yesterday.
“Investment activity recovered notably year-on-year. This is partly attributed to a marked improvement in investor confidence on the back of Cyril Ramaphosa’s appointment as President of South Africa, said Zandile Makhoba, head of research for Sub-Saharan Africa at JLL.
JLL is a leading global professional services firm that specialises in real estate and investment management.
Makhoba added though that “2019 may start off a bit slower in terms of activity with the national elections taking place in May.”
Gauteng dominated investment activity with total investments of R11.3 billion in 2018 from R3.1 billion in 2017. However, while Gauteng saw investments more than double in comparison to 2017, the opposite was true in other provinces.
The Western Cape recorded a 15 percent year-on-year increase in investments to R5.7bn. The remaining provinces, including KwaZulu-Natal, saw declines.
Makhoba said the commercial real estate industry needed greater clarity on land reform and this may also delay potential transactions this year, as investors await the government's decision whether to amend the Constitution on land repatriation without compensation.
In contrast to previous years, the retail sector recorded a 7.4 percent decline in total investment.
But investment growth was dominated by the office sector, which recorded R10.3 billion in sales of more than 58 properties, almost triple the value recorded in 2017. The average value per square metre for office was R12 233 in 2018, compared to a value of R11 360 in 2017, an increase of 8 percent.
The retail sector saw a decline in activity of 7.5 percent to R4.2bn, and although retail assets remained sought-after, stock was lower than demand in terms of investment.
“However, we have noted subdued interest from investors with regard to stock that is currently available for sale,” said Makhoba.
Activity in the retail sector remained concentrated in “much smaller accommodation,” with the largest being small shopping centres of up to 50 000m2. Large retail malls remained off the market.
In the industrial sector, the value of deals improved notably over 2017, with evidence that average yields had declined.
Investment activity in the industrial sector was led by Gauteng in 2018. Investment in Johannesburg more than doubled from 2017, at R2.4bn in 2018. Investments in the Western Cape and in KwaZulu-Natal industrial properties remained largely unchanged. No sizeable transactions were recorded in other provinces in 2018.
Looking to 2019, Makhoba said there were a number of pending transactions for the first half of the year, including a portfolio sale by the Moolman group, as well as pending transfers from Emira and Octodec, among others.
There had also been some activity in alternative sectors, with disposals under way in the student accommodation and elderly care sectors.
“Reasons for acquisitions and disposals are much more strategic now than had been the case during a much tougher economic climate two years ago. For example, Rebosis has reduced its office portfolio notably in 2018 as it positions itself as a retail Reit. This kind of portfolio adjusting has been seen in a number of Reits.”