DURBAN - What makes real estate different from fast moving consumer goods (FMCGs)? Its durability, that is.
A building’s life expectancy is typically a couple of decades, compared to non-durable FMCGs that are consumed within weeks. Thus, there is little excuse for a FMCG retailer to carry an excess of stock.
Compare that to an excess of office space. As a building is ‘consumed’ (becoming obsolete) after about three decades or longer, it could take many years for an oversupply of space to be mopped up. This is so because the stock (supply) is not consumed in the short to medium term, thus leaving it to demand only to catch up with supply.
The length of this catch-up process depends on:
- The growth rate of the economy
- The magnitude of the vacancies that has to be absorbed, and
- The volume of new construction that is still in the pipeline when the recession struck. In this regard, note that in the case of commercial buildings, the construction period is much longer (up to five years) than is the case with houses (less than a year). Thus, the construction activity of commercial buildings, as well as its market rentals, are a lagging indicator of the economy. By the time commercial property rentals turn up, the economy has been in an upswing for a year or two.
The practical implication of this difference in durability is that the property cycle is much longer than the business cycle. In South Africa and many other countries, the property cycle is about 15-20 years, compared to the business cycle’s duration of about 3-7 years in South Africa.
This has important investment implications, also for investment in houses. If you’d like to learn more about the ins and out of property investment, Rode will pass on his in-depth knowledge at the Independent Home Property Summit & Expo. You're invited to the Independent Home Property Summit & Expo.
Join the conversation with Chantell Ilbury, Erwin Rode, Adrian Goslet, Vuyiswa Mutshekwane, John Loos and Vivian Reddy and many other world class CEOs on three unique stages of engaging world-class speakers, industry experts, thought leaders and peers who are eager to share their best practices, tested solutions, and proven results and to further discuss industry challenges.
The Summit will build better connections between key stakeholders of property professionals, investors, government, private entities, developers and property owners. Earn CPD points as you discover the future trends and impact of technology whist networking with industry bodies, including EAAB, SAIBPP, IEASA, ARC, YIPA.
Join us September 28th-29th 2017 at Durban ICC, Durban, KZN, South Africa.
To register for the Property Summit & Expo please visit www.homepropertysummit.com
To exhibit at the Property Expo, email: [email protected]. Over 60,000 visitors are expected to attend the festival at the Durban ICC.
- BUSINESS REPORT