Weak demand impacts on industrial property, office rentals – Rode

31 October 2017

A “lack of vigour” may be the best way to describe the current performance across the full spectrum of property in South Africa, says property economist Erwin Rode.

In the industrial property sector, contractions in spending on durable goods are impacting on the demand for locally manufactured goods and, in turn, manufacturing production lines.
The end of the second quarter marked the ninth consecutive quarter in which the consumption of durable goods had contracted, with a 2% contraction seen over the previous year.
“At this point, these low levels of consumer confidence and the falling amounts of real credit being extended to households do not bode well for the outlook of spending on durables. Therefore, the manufacturing sector will continue to be negatively impacted on by this spending environment,” Rode said in a statement issued on Monday.
The situation did, however, appear to be slightly more buoyant in the Cape Peninsula, where nominal market rentals for prime industrial space could muster growth of 9%.
Meanwhile, office rental growth has also been affected by weak demand.

“Overall, the only two geographical areas that could show yearly growth in market rentals were Durban decentralised at 5%, followed by Cape Town decentralised, with only 3%. Johannesburg decentralised office rentals remained, on average, at roughly their previous year level.”
On the residential front, except for Cape Town, low sub-inflation growth in house prices is expected to continue for a few years.

Meanwhile, Cape Town house prices are growing at roughly double the rate in the rest of the country, “but nobody can tell whether this outperformance is sustainable, considering the affordability ceiling”, he said.

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