Tait Brands - Biannual Property Indicator report IPD SAPOA SA

The highly-anticipated SAPOA/IPD South African Biannual Property Indicator to June 2012, released today, spotlights a moderate improvement in the property market over the past six months, but shows little sign of a full-blown recovery across the sector.

Property investment overall delivered a total return of 5.9%, which was comprised of 1.5% capital growth and a 4.4% income return for the first six months of the year.

A major obstacle for the industry identified in the results is sky-rocketing operating costs, which are quickly outstripping income growth and pushing cost ratios to unattractive levels.

Electricity costs continue to rise, and at monthly average of R12.8/m2 now make up one third of the total operating cost bill for property owners. Rates and taxes constitute a further 20% of the total. The burden of costs is being felt jointly between tenants and owners, however, with around three quarters of total costs falling to the tenant to pay.

Sector-wise, the picture is worst in the office sector. Plagued by stubborn vacancy rates, which shifted from 12.1% in December 2011 to 15.0% in June 2012, and negligible rental growth at just 0.1%, office properties have also seen the highest growth in operating costs across all property sectors.

Offices in inner city and provincial nodes are the hardest hit, with rental levels moving backwards.

Nevertheless, there is room for cautious optimism.

Gains are evident in particularly the retail but also the industrial sectors.

Retail property returned the top capital growth rates at 1.7%, along with solid 3.7% rental growth and strengthening occupancy rates. Vacancies in the sector improved from 6.0% to 5.7% over the first half of the year.

Positive rental growth at 4.2% and declining vacancies from 4.3% to 4.1% are likewise good news for industrial property investments.

Six months ago, the IPD’s 2011 results showed 10.4% annual returns in property investments overall, with a slight uptick in the second half of the year that suggested a possible recovery. At the same time, vacancies increased to 6.9%, rental growth declined to 6.2% and yields weakened by 36 basis points, to 9.6%.

Although returns for the first half of 2012 are better than 2011, the results show a fairly muted picture of performance and we are still not seeing any substantial recovery.

The SAPOA / IPD South African Biannual Property Indicator is based on a sample of 1,088 properties covering R104.7bn capital value at the end of June 2012.