April building statistics released this week continued to show strength in commercial building activity while residential, which is still at solid levels, is showing a small growth recovery in terms of number of units completed, according to John Loos, property strategist: FNB Commercial Banking.
In April, the number of residential units completed showed an increase in year-on-year growth from 6% in March to 29%. But Loos says given the variety of public holidays and school holidays around that time, not too much should be read into such jumps in the monthly figures from one year to the next when April is involved.
Nevertheless, this brings the three-month moving average growth rate for the three-months to April to 16,9%. Therefore, the residential development market is still ticking along quite nicely at levels that are relatively high by historic standards.
The overwhelming majority of all national residential completions for the three-months to April took place in Gauteng (42,6%) and the Western Cape (29,3%), while KZN continued to show very poor performance, accounting for only 8,1% of completions.
Loos says if one compares growth in value between residential and nonresidential completions, April figures pointed to far stronger performance in the non-residential component of building activity.
Whereas the value of residential completions rose year-on-year by 27,8%, non-residential completions rose in value by 126.9%.
“This had not only to do with strong price inflation in the commercial property sector but indeed also due to a strong surge in the square metres of commercial space completed.”
Looking at the latest figures, Loos says the latest increase in completions appears still in its early stages, while overall level of completions is still low. “But perhaps, finally, the sort of growth rates we are now seeing is the start of a move to far greater levels of completion in lagged response to very low vacancy rates in the area of office space.”
Completions of new retail space, on the other hand, are believed to be due for a slowdown. While retail completions from month to month are very erratic, there are some signs of such a slowdown.
Square metres of building plans passed in retail space have slowed very significantly this year to date, while growth in square metres completed for April was negative to the tune of –27,7% following a –21,5% in March. “Nevertheless, there must surely be considerable shopping centre development in the pipeline in lagged response to the big consumer boom of recent years, so these figures are bound to jump up sharply
But the one area of commercial property completions where there is a very clear upward trend is in the area of industrial property, whose completions have been broadly rising since 2004. Year-on-year, growth in square metres of industrial and warehouse space completed shot to 159,4% in April from 79,7% in March
In a nutshell, Loos says, it is the area of commercial property where the big growth in building activity is at present, although it must be remembered that the residential sector remains far bigger in terms of levels of activity.
Residential property building activity has not fallen through the floor, however, and a little comeback in completions in recent months reflects the strength of the economy and the ongoing growth in demand, despite the fact that the big interest rate stimulus to property started wearing thin as far back as 2005.
In the area of commercial property activity, Loos believes that retail completions are due for a slowdown, but that impressive growth numbers will continue to be seen in the area of industrial property this year, and increasingly in office space too.
The office market has lagged industrial and retail in terms of total returns for a few years, and this has been reflected in its building activity levels,which have been slow in coming to the party. However, the early sign are that this segment could finally be joining the boom times.