Although there had been moderate improvements in the property market over the past six months, there were little sign of a full-blown recovery across the sector, the South African Property Owners Association/ Investment Property Databank’s (IPD’s) biannual property indicator highlighted on Tuesday.
Property investment overall delivered a return of 5.9% in the period ended June, which comprised 1.5% capital growth and a 4.4% income return for the first six months of the year.
“A significant industry obstacle was the sky-rocketing operating costs, which are quickly outstripping income growth and pushing cost ratios to unattractive levels,” the report said.
Electricity costs continued to rise, and at a monthly average of R12.8/m2, it now makes 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, around three-quarters of total costs fell to the tenant to pay.
The report noted that the picture was 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, the report stated that there was room for cautious optimism as gains were evident in particularly the retail and 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,” explained IPD MD Stan Garrun.
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% yearly 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. We are still not seeing any substantial recovery,” Garrun noted.