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The very moment the calendar flipped over to 2018 the new year had all the promise of a rollercoaster. The collapse of the Steinhoff Group in late 2017, the election of Cyril Ramaphosa as leader of the ANC and the positive sentiment towards South Africa that flowed from this event had to be juxtaposed against politics surrounding President Jacob Zuma and the ANC conference resolutions, with specific reference to land restitution without compensation. Now, hot off the press, the government Land Audit report recommends a new Land Tax on fixed property as well as nationalisation of land. And if that’s not enough, the 2019 general election is bound to dominate SA politics in 2018 and have a significant influence on investor sentiment.
In the event that the real economy provides a foundation for greater investment in the principal office, retail and industrial property sectors, the obvious question is - which sector will prove most attractive?
Many investors look at all three, while some prefer certain sectors over others. Over the past few years there has been a heavier weighting towards retail assets as compared to office and industrial assets. Now, while some retailers reported disappointing results for the last quarter of 2017, others such as Mr Price, Truworths and The Foschini Group reported excellent sales growth figures. This resilience in retail lends some weight to the retail property sector. However, we need to remember that shopping centres, unlike large industrial premises, need to be actively managed and continually updated. On the flip side of the coin, they do offer the financial security of generally having strong national retailers as tenants. Then again, online shopping has the ability to impact footfall in malls, but unlike the USA and UK, South African consumers still enjoy visiting shopping malls where they can socialise and be entertained.
There have been increasing investment flows into conversions of office space into residential units, residential letting property as well as student housing. Interest in international destinations such as Eastern Europe has not waned, and growth continues in the niche property investment sectors of hospitality, and medical and educational facilities. Add to this the global trend of redeveloping CBD’s and downtown districts which gives rise to new commercial and residential opportunities - a case in point is the Harbour Arch development in Cape Town which will see a resurgence of a neglected area of the city.
As opposed to the retail and office sectors, the industrial sector - which includes warehousing - faces headwinds due to rapid facility obsolescence as the demand for tailor-made sites increases. Technology has enabled highly sophisticated logistics and changed the design of distribution warehouses, particularly those serving the retail industry. As an example, online shopping vendors require specialised distribution warehouses, often served by robotic stock pickers, all with the aim of faster delivery to customers.
The South African business environment is challenging and tough, but we need to remember that 60 million South Africans depend on the various property sectors for all manner of goods and services. With this in mind there are definitely opportunities for tenants seeking favourable deals as well as for investors looking for a property investment with good returns. There are still incredible deals out there – one just has to look harder and negotiate smarter.
We at the Broll Property Group have both the knowledge and the expertise to seek out the best deals and guide our clients to financial success.