Returns in the South African property investment sector hit the lowest level since 2009 after falling from 13% in 2015 to 11.1% in 2016, a 190 basis point decline, the latest IPD South Africa Annual Property Index shows.
NYSE-listed MSCI, which compiled the report, noted this week that “it was hardly” surprising, as commercial property returns closely track the general economy; however, the sector has delivered consistently since the inception of the index in 1995.
The index shows 2016 income returns remaining steady at 8.3%, while capital growth fell from 4.4% in 2015 to 2.6% in the year under review, with an improved base rental growth of 6.2% offset by negative yield impact.
“Even given the decline in total returns, the sector has once again proven its resilience by providing real returns in 2016,” said MSCI executive director Phil Barttram.
Overall, industrial property was the top performing sector during the year with a total return of 13.6%, outperforming retail at 12.6%, while the office sector continued to struggle on the back of subdued capital growth and was particularly hard hit in 2016 with a total return of 7.6%, he noted.
At a property segment level, inner city and decentralised offices were among the worst performing segments for the year with total returns of 7.5% and 7.7% respectively, the report showed.“The top performing segments for the year were high-tech industrial property and neighbourhood shopping centres, which produced total returns of 18.1% and 20.3% respectively.
