Durban rentals could rise 10 to 15% in next 12 months

Serious undersupply in Durban’s lower to middle rental market is expected to drive rentals up by a minimum of 10 to 15 percent over the next 12 months, according to Andrew Foxcroft, director of Wakefields Property Management Services.

This follows on from a ten percent increase already being posted in this rental market segment since December last year with powerful upward pressure coming from growth in demand for centrally located accommodation from city workers.

Evidence of the degree of demand comes from the rapid pace of take up of office and shop space in virtually the whole of the greater Durban area, according to Foxcroft who notes that the under supply is being fuelled by the strong desire for people to live as close as possible to their workplace.

Current average monthly rentals for good quality flat in the Berea and central areas according to Foxcroft are R1 500 for a bachelor; R2 250 for a one bed; R2 750 for a two bed and R4 000 for a three bed unit. Luxury accommodation comes at a 20 percent premium on these rates.

But while the demand stress is expected to ratchet up further in the lower to middle markets the converse applies in upmarket accommodation with an increase in oversupply beginning to impact negatively on rental values, according to Foxcroft.

This is particularly the case in the Umhlanga Newtown precinct where a number of new apartment buildings have, or are about to come on stream - owend principally by individual investors, the competition for the relatively small pool of financially able tenants is hotting up. The situation is being further exacerbated by the increase in the prime overdraft rate and two further increases leading to continually escalating holding costs.

Foxcroft advises investors – and he includes owners in new developments in t he Ushaka area - to accept the knock in the short term by accepting more affordable rents. Faced with this oversupply, rentals are expected to remain steady in this sector for at least the next 6 – 9 months, with only muted increases thereafter.

He notes that the oversupply situation is also likely to impact on capital growth prospects in the medium term, with a consequent extension of the holding period in order to benefit from decent capital returns.

However, there is a bright light at the end of the tunnel, with 2010 promising to create superb short term rental opportunities as soccer enthusiasts combine their world cup viewing with extended holidays in the Durban area.

“There is no doubt that Durban is being aggressively and successfully marketed as an international holiday venue and this bodes well for landlords.”
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