State leasing contracts may give property investors a reliable cash flow, while sales of distressed commercial properties may mean that bargains can still be found.
The South African commercial property market is showing signs of recovery in the coming year with certain areas offering reasonable prospects for higher profits, claims Mergence Africa Property Fund.
“There is a cautiously positive outlook for investments in commercial property in South Africa with a number of bright spots around the country offering the potential for higher-than-average returns for investors,” claims Mergence’s Izak Petersen.
He says that property owners with the right black economic empower credentials will benefit from leases from government departments and state-owned enterprises. “These leases represent a low risk in the testing economic environment,” says Petersen.
He says that property investors need to have a mix of government and national corporate tenants in their portfolios as these contracts improve the cash flow reliability, which is essential for property investment.
“Government tenancies put investors in the beneficial position of being default-free,” he says.
Referring to the risk profile, Petersen points out that corporate downsizing and the growing number of liquidations have boosted the rental default levels and when this is combined with higher municipal and electricity charges it makes the commercial property market challenging.
“For those property funds looking to acquire new properties, the increase in distressed selling may mean that bargains are available and could lead to more quality stock coming into the market,” he says.
According to the latest SAPOA Office Vacancy Survey, prime office space in Johannesburg and Cape Town was either fully let or had vacancy levels of less than one percent.
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