While 2016 can best be described as somewhat of a rollercoaster year in regard to the economy and the political landscape both locally and internationally, during the fourth quarter we definitely experienced a mental shift among sellers in the commercial property market, according to Norman Raad, CEO of Broll Auctions & Sales.
“The unrealistic bubble has burst and sellers, including the REITS (Real Estate Investment Trusts) are showing rationality when selling their assets. Over-priced properties are now being correctly priced and traded. In our view the entire property market has been overpriced for years and when it comes to selling on the open private market, one has to take into account that the cost of funding for investors is far greater than that of a REIT or pension fund and so the yields are higher.”
Raad says the yields paid by the REITs are a circumstance of trading yields and income, with hope of growth for the fund. “However growth has been a challenge for every REIT as all developers’ pipeline and quality assets are scarce or in huge demand and so they have had to look abroad to deploy their funds.
“A few years back, Africa was the ‘flavour of the month’ among many funds. Now we have seen a move aggressively abroad to Eastern Europe, the UK and Australia towards rand hedge investments in commercial property for office and retail use. For example, Rockcastle Global Real Estate Company and sister fund New Europe Property Investments (Nepi), which are set to merge during the course of the year (2017), and which between them own in excess of 40 shopping centres.
“The local investor is still very well placed to take up opportunities in these uncertain economic times and while we are facing challenges with little or no economic growth, property always finds a way to increase in value over time. It is not a short term play and investing for the longer term has created and currently represents more than 60 percent of worldwide wealth.”
Broll’s first auction of the year is to be held at noon on 14 March (2017) at the Wanderers Club in Illovo, Johannesburg. And Raad says the property sector seems to have been shown some reprieve with rates hikes being set aside, providing more stability in the marketplace, all of which bodes well for auctions.
“With over 30 properties coming on auction, the market has responded well to commercial assets that just a year ago were not experiencing demand. Price realisation has occurred and sellers are a lot more flexible in their approach to selling. There comes a time when a property doesn’t seem to have the ability to unlock any further value, while the new owner has the funds and vision to do just that. These properties are finding their way to the market, with sellers’ intention of redeploying the proceeds into other opportunities.”
Properties on the March auction include a very well maintained industrial facility previously used by an international retail group for manufacturing and storage which is expected to change hands for approximately R2000 per square metre, which is huge value for money as it represents not much more than the land value in existing and surrounding areas. Consisting of three adjacent sites in Booysens, close to Johannesburg CBD and main arterial routes, the properties comprise gross lettable areas of 3408, 7961 and 3792sqm. The properties are vacant and would be a good acquisition for a single investor or an owner occupier.
The Hub retail centre in central Pietermaritzburg is a typical high-yield income generating property which rarely finds its way to the market. The property should be sold at a forward yield of 11 percent or more, with increased demand potentially driving the yield close to 10 percent. Being a sector which offers more promise going forward than any other in the commercial property arena, retail is experiencing strong demand based on a strong tenant base. Of further benefit is that the Hub has a lease in place till 2021 and can choose to renew. The property achieves a gross annual income of in excess of R4.4 million per annum.
Raad says a landmark building in Rivonia Road in Morningside is as rare an opportunity as they come. Stand-alone offices are sold on their bulk and these premises offer the perfect site for well-positioned and high-exposure corporate head office in sought after Sandton. With a realistically minded seller, this property should fetch close to R20 000 per square metre.
“A bank portfolio in Pretoria and Krugersdorp will also have no shortage in demand as the seller’s price expectations are reasonable as they find their reasons for selling to be significantly more justified than holding onto the assets, presenting a sound investment opportunity for buyers.” A listed fund disposal, most of the properties are vacant and suitable for retail and office use.
A further property on auction is a potential residential development opportunity in Bryanston, where two erven of 2088 and 2161sqm (currently zoned for residential 1) are ideal for cluster housing, while in Johannesburg CBD 96 sectional title units, 86 flats and 10 shops are well situated in Pritchard Street. This property comprises a GLA of 5115sqm for the residential component and 1158sqm for the retail component.
In Parktown North, an area always experiencing a strong demand for residential accommodation due to its close proximity to Sandton, six income producing cottages also go on auction.
And fronting onto busy Republic Road in Randburg, a property comprising a GLA of 3400sqm and formerly used as a motor dealership is ideally positioned for similar use and investment.