On-demand office space, e-commerce, inner-city gentrification and worker mobility trends have resulted in property investors exploring new models to turn a profit in the soft market.
The commercial property sector has delivered robust returns to institutional investors over the last 15 years.
“We’ve realised phenomenal capital growth on the back of strong asset appreciation and rental increases that have kept pace with inflation,” says Darryl Mayers, Joint-CEO of the Investec Property Fund.
“By leveraging time and inflation, this asset class has outperformed just about everything else in the local market over this period,” adds Joint-CEO of the Investec Property Fund, Andrew Wooler.
Developers and investors exploited this bull market to rapidly scale their portfolios, which led to significant residential and commercial development around South Africa’s major urban nodes. Among institutional-grade commercial properties, Wooler says retail was a standout performer for fund managers and investors.
However, the fundamentals that fuelled this boom period for the local property market have dissipated and the dynamic has shifted. “Due to a weak macroeconomic climate characterised by low growth and instability, no new businesses are entering the market, which means a lack of new tenants,” adds Wooler.