Boston, MA -- (SBWIRE) -- 07/26/2012 -- The South Africa Real Estate report examines the Commercial Office, Retail and Industrial segments throughout the country in the context of an industry in the midst of a protraction construction lull following years of double digit growth.
With a focus on the two principal cities of Johannesburg and Durban, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the government led infrastructure initiative on a market already characterized by a tepid construction pipeline. This will continue to hit domestic construction companies hard, with those that are the most internationally diverse likely to outperform over the coming quarters. With the construction sector firmly mired 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 those with a GLA portfolio, as the slowdown in the project pipeline will go some way to rectifying the imbalanced supply and demand dynamics.
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As such, the negative supply side outlook for the sector, is starting to have a tangible effect upon the real estate rental market with the office sub-sector showing signs of sharp rental divergence characterised by a supply side deficit but continued demand, whereby maximum rates soar. This is a significant change in the market dynamic, which has historically been characterised by a glut of supply. In terms of year-onyear (y-o-y) activity, it is the retail market which seems to be the weakest performer; however, looking below the top line data, we can see that this is due to a more stable supply-demand dynamic, as retail is the sub-sector which still has a steady pipeline flow.
- BMI sees the South African economy continuing its uneven recovery over the medium term, with real GDP growth forecast expected to slow to 2.7% in 2012 from an estimated 3.1% in 2011. Although the consumer sector is showing signs of life, the supply side is lagging behind and there are widespread concerns that the recovery is not sufficiently broad-based.
- We forecast that South Africa's repo rate will be kept steady at 5.50% until the final quarter of 2012. That said, we acknowledge that there are risks both to the upside and downside. Rates could be hiked if food price pressures escalate. Conversely, rates could be cut if the eurozone descends further into crisis.
- Policy uncertainty is relatively high owing to question marks over whether President Jacob Zuma will secure another term in office.
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