Boston, MA -- (SBWIRE) -- 12/31/2013 -- We believe that the real estate sector in South Africa will remain stable in 2014 because of a lack of change in the supply demand dynamic and enough new projects in the pipeline to satisfy strong demand. Net yields will remain consistent in all sectors, and we will see only a couple changes in rental rates. The sector does face some headwinds in terms of faltering macroeconomic conditions, a volatile currency, and inflation concerns, but it is still one of the brightest commercial real estate prospects in the region.

Commercial real estate is dependent on a healthy macroeconomic environment. South Africa's economic prospects have deteriorated amid rapid currency depreciation and rising tensions in the critical mining sector. We are forecasting real GDP growth of 3.3% in 2014, with risks weighted firmly to the downside. Poor economic growth affects the sector as it dampens both property fundamentals and capital markets, putting downwards pressure upon tenant retentions, rental growth, yields, development activity, financing and asset values.

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In general, demand is stable as South Africa due to its position as an attractive regional base, resulting in high occupancy rates and increasing rents. Nevertheless the development pipeline remains well below pre-2010 levels. As such, we expect favourable absorption-completion dynamics will buoy the leasing sector in the short term, but unless development activity picks up this indicator will serve as a hindrance to long term growth.

With the construction sector still in a period of stagnant growth, we see few opportunities to lift the industry out of the quagmire. For real estate firms with a higher dependence on the construction side, the risks are greater than for those with a portfolio of leasable space, as the slowdown in the project pipeline will go some way to rectifying the imbalanced supply and demand dynamics.

Recent Developments

- The International Council of Shopping Centres (ICSC) has announced a collaboration with industry body, the South African Council of Shopping Centres (SACSC). The organisations will work to integrate South Africa's shopping centres with retail networks worldwide, enabling the industry to make use of analysis and new resources from across the globe, EPROP reports. Members of the SACSC will become affiliates of the ICSC, with access to the body's research, assistance and guidelines.
- Property in South Africa provided investors with a 9.2% return in H113, an increase from 8.9% in H212. Analysts have attributed the increase during the period to capital growth.

Key BMI Forecasts

- Rental rates across the office sector will remain stable for 2014.
- Rental rates in the Cape Town retail sector will increase by 5%, with rates in Johannesburg and Durban remaining stable.

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