The yearly growth in industrial rentals was slowly recovering in South Africa, seemingly benefiting from the lagged impact of declining vacancy rates, property consultancy Rode & Associates’ latest report on the local property market has revealed.

“In fact, such has been the acceleration in the growth of market rentals in this sector that, in the fourth quarter of 2012, prime rentals recorded a nationally averaged growth rate of 7%, with the strongest yearly growth of 9% being achieved in the Cape Peninsula.

“Disappointing, however, is that the national average still failed to be in excess of building cost inflation. Hence, we are not yet out of the woods,” cautioned Rode & Associates property valuer and economist Erwin Rode.

Further, the situation was somewhat bleaker for office rentals, which remained lethargic, owing to generally weak demand.

“Market rentals in Cape Town and Pretoria decentralised barely mustered yearly growth of 3%. Johannesburg decentralised only managed a measly 1%, while Durban decentralised actually saw rentals contract by 4%,” Rode noted.

During the first months of this year, the yearly growth in national house prices accelerated significantly.

“The low and stable cost of borrowed money [interest rates] may be one possible explanation for this,” Rode suggested, adding that another reason could be the still-decent growth in household disposable incomes. However, he warned that there would be strong headwinds ahead.

Household debt levels remained high, adversely affecting consumers’ credit-risk profiles. Other headwinds in the way of house prices were the current slump in consumer confidence levels, the upward pressure on property running costs and the jittery growth in economic activity.

Further, Rode stated that housing finance had seemingly remained unchanged, with 100% loan-to-value mortgage loans and discounts to prevailing prime interest rates seen during the boom years having become not much more than a distant memory, especially in middle- and upper-income segments.

“For these reasons, the growth in house prices might do a dead cat bounce. We do not believe inflation-beating growth is sustainable.

“Much to the relief of nonresidential property owners, frustrated in recent years by rising vacancy rates, poorly performing market rentals and explosive operating costs, capitalisation rates have at least been able to hold their own,” Rode said.

He added that, owing to the substitution principle, capitalisation rates on larger shopping centres declined on the back of a general decline in global interest rates, stock and bond yields. This resulted in notable growth in the market values of large shopping centres during 2012.