There is a healthy demand for commercial and industrial property in South Africa (especially within the private sector), with the result that rentals and sale prices have been maintained at satisfactory levels. This is the view of Leon Breytenbach, the Rawson Property Group’s Commercial Franchises Manager.
“Traditionally”, says Breytenbach, “in our hunt for the right tenant, Rawson brokers have often looked first to national and multi-national companies, together with their subsidiaries and associates.”
“The big advantage in the past of being linked to these,” says Breytenbach, “was that the investor knew that his rental payments were almost guaranteed. But to everyone’s surprise today, there are increasing concerns amongst the nationals and multi-nationals – some of which are being downgraded by international rating agencies, others are entering business rescue proceedings, while others downsize their current operations in pursuit of healthier bottom-line profits.”
“This year,” says Breytenbach, “we have an encouraging number of innovative new start-up businesses and in some cases the expansion of similar businesses initiated a year or two ago.”
This, he says, bears witness to the increase of independent entrepreneurial activity in South Africa over the last few years. For the smaller firms it can be more difficult to assess the risk, and the broker needs to be well qualified and able to investigate the tenant’s position thoroughly. In addition they need to make sure that the plethora of legislation, linked to the tenancy process, is adopted diligently and meticulously.”
Within this entrepreneurial market, the emphasis is on smaller units, both office and industrial, says Breytenbach, which means that the high demand offices are those with 200 m2 to 300 m2 of lettable space, while in the industrial field the most sought after spaces tend to be 500 m2 to 750 m2.
“This,” says Breytenbach, “is true with regards to rentals in all big centres, although each city has its preferred nodes. In Cape Town right now, Century City and the Claremont CBD are seeing particularly strong demand for office space, while Killarney Gardens, Maitland and Epping are sought after industrial areas. In Durban it is in the Berea, Musgrave and Windermere areas where office space is most sought after, while the demand in Jacobs is also on the rise. In Johannesburg the stretch between the Oliver Tambo Airport and the Johannesburg CBD (with the suburbs on both sides of the highway) is a particularly interesting commercial node which holds good value for both office and industrial space if you consider its location from a strategic point of view.”
Most commercial lease agreements, adds Breytenbach, are signed for two to five years and will usually include annual rental escalation clauses of 7% to 10%. However, where rents are negotiated at the end of the lease period, tenants today often ask for reductions on account of rising electricity, water, municipal services, municipal rates and other costs. Landlords and brokers, he says, are wise if they do not take too hard a line with their tenants – it is always wise to help a good tenant to survive rather than to go looking for a new one who may prove less reliable.
“Despite a fair quantity of negative media coverage on commercial, industrial and retail prospects, the plain fact is that many of the commercial properties we assist with today generate an average return of around 15% (including capital appreciation). This makes investment in this field increasingly attractive to large numbers of people.”
With the present demand, said Breytenbach, the expansion of the Rawson Property Group’s commercial franchise network should continue as before and result in their having 50 such franchises up and running by mid-2016.
