SA Commercial property market performing with optimism

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The South African economy has once again underperformed in 2016, showing no signs of a comeback. The International Monetary Fund revised economic growth expectations for 2016 and 2017 down to 0.1% and 0.8% respectively.

Despite this challenge, the commercial property market is performing with much optimism. Looking at various major cities’ performance, one might think we are experiencing a positive economic environment. Sandton, Rosebank, Bryanston, Waterfall Estate and Cape Town City are showing no signs of a slowdown as they strongly compete with modern and green-rated buildings.

Regardless of this, consumers are finding it difficult to meet increasing costs. Inflation is averaging 6.5% in 2016, higher than the averages we have seen in the past five years and further impacted by the volatile rand and oil prices in the recent years.

Strong competition in the Gauteng retail shopping malls

There are signs of pressure in the retail property space prevalent mainly due to cannibalisation and strong market competition. Gauteng, in particular, has had new regional and super-regional malls opening or undergoing massive expansion.

This has put pressure on neighbouring centres’ trading densities, exacerbated by the slowdown in the economy where retail spending has been strained in the past year. The very same centres are competing for the same struggling and debt-ridden customers.

In 2016 alone, two new centres were added in the market – the 90,000m² Mall of the South and the 131,000m² Mall of Africa. Menlyn Shopping Centre and Fourways Mall are also undergoing major expansion to super-regional centres. Menlyn Mall is expected to be the largest shopping centre in Africa with 170,000m² of retail space.

Customers are spoilt for choice; the bigger the centre, the more choices available. In turn, this means the smaller centres will be forced to specialise, much like Nicolway and Morningside shopping centres which offer restaurant facilities.

Competition is prevalent in the retail space, however from 2017 onwards, should the economy not improve, real estate institutional investors will be forced to scale back and diversify into other segments of property.

Demand for student accommodation to remain buoyant

The past two years have seen the resilience of the #Feesmustfall movement which became more violent in 2016. One of the many results from the protests is students fearing being on campuses due to the unrest, encouraging more students to find accommodation off campus.

Further to this, the student population has been on the rise in South Africa, with a number of students looking for safe, secure and affordable accommodation. There has been an increasing demand in students looking for accommodation of which current campuses’ housing stock cannot meet.

Property developers are starting to consider increasing investment in this important sector of the economy as the demand continues to rise.

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