Commercial property expected to perform well

The commercial side of the South African property market recorded a mixed performance in 2005, according to Absa.

The total square metres for which plans were passed during this period in respect of offices, shopping centres, industrial buildings and warehouses, increased by 43,8% compared with 2004, while the total square metres that were completed in respect of these buildings increased by only 10,6% compared with the previous year.

This, the bank says, was largely as a result of a decline in shopping space completed in the Western Cape (-7,8%), Gauteng (-35,9%) and KwaZulu-Natal (-42,7%), which is probably related to the final completion of the construction phase of big shopping centres in these provinces.

A drop of 24,7% in the completion of industrial and warehouse space in Gauteng in 2005 largely contributed to growth of only 1,8% in buildings completed in this segment of the commercial market last year. However, taking into account the strong growth in plans passed for shopping, industrial and warehouse space in 2005, the construction of these type of commercial buildings is expected by Absa to pick up momentum again in 2006 and 2007.

The office market experienced strong growth in 2005, with this trend most likely to continue over the next two years taking into account the amount of space still in the planning phase in this market segment.

Commercial, and especially retail, property developments normally follow major residential developments after some time. Taking into account the strong growth in plans passed for specifically new flats and townhouses in 2005, more shopping centres and office buildings are expected to be constructed during the next 12 to 24 months.

With the stimulus the property market will get from the adjustments to transfer duty on property announced in the recent Budget, together with relatively strong real economic growth of above 4% per annum projected for 2006, the various segments of the commercial property market are forecast to continue to perform well over the next two years.
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