Abacus DIVISIONS February 2012 News !
Commercial property rentals - more especially higher grade assets - will improve during the third and fourth quarter of 2012 – Abacus DIVISIONS
With many economies still feeling the ‘hangover affect’ of the deep 2009 recession, the commercial rental market will “remain under pressure”, possibly improving during the third and fourth quarter, said Org Geldenhuys, managing director of property management company, Abacus DIVISIONS.
Despite “pockets of excellence” – where certain sectors of the commercial property sector are performing well, Geldenhuys said the recovery of the economy during 2011 was slower than some people expected. Although disposable income improved – which had a positive impact on the retail sector in South Africa - other local economic factors, such as the rising cost of electricity, as well as increases in fuel and rates and taxes, could hamper the economy’s recovering and prompt an increase in business bankcrupties and unemployment.
“It looks as though office vacancies are fairly stable but limited demand and a pressure on rental prices continues to present problems, with many of the cheaper rental agreements struck by tenants only expected to start working their way out of the market later this year. One trend we are seeing,” said Geldenhuys, ‘is that A grade buildings, and green buildings such as those found in Route 21 Corporate Park, Irene, are, to a large extent, still commanding decent rentals. Most of the lower rental agreements struck by hard-pressed landlords has been to do with older buildings, or lower grade buildings.
“While the commercial property market is still not out of the woods, we are seeing an increasing number of ‘pockets of excellence’, where some business parks, or buildings, are receiving good rentals, including being able to negotiate very reasonable escalations. But these pockets of excellence,” said Geldenhuys, “are essentially been seen in the A grade commercial sector.”
Geldenhuys said that too many “cash-strapped” landlords had, over the past two years, discounted rental prices just to “get some cash flow coming in”.
“But this has had a detrimental affect on the market, including on the portfolios of many property owners, as the banks essentially value buildings on what kind of rental income they command. The cheaper property deals concluded in recent times will only start coming to end in the third and fourth quarter of this year. On the positive side landlords who signed these discounted leases had done so for short lease periods - such as a one year lease. This will have a positive impact on the market, and it is possible that rental prices will be in more of an upwards curve at the end of the year, and into 2013.”