Will we return to boom times in the commercial property sector?June 20th, 2013 | Posted by in Commercial Property
Globalisation, international trade relations, and the power of the Internet mean that no business operates in isolation. If one economy trips, others will stumble; if one major corporation hits an obstacle, the smaller businesses that operate in its wake will also be affected by it. So when the 2008 recession arrived on the economic scene, it had a global impact and even badly affected the fairly independent South African economy. With less investment capital to go around, commercial trade slowed and the commercial property sector saw the end of the incredible boom period of 2001 to 2007.
During the boom, the commercial property sector recorded sky-rocketing prices, low vacancies, and massive investment influx, with investors local and abroad looking to capitalise off such a healthy market. When the 2008 recession cast a dark cloud over the international market, the South African market also suffered a major slump, with financial power receding away from the excesses of the past.
The good news for the current market is that the effects of that recession are rescinding and the market has slowly but steadily gained new ground, and a new boom period is expected in the next four to five years. The property market generally experiences a significant boom every 10 years, roughly synchronised with the 20-year boom cycles of the construction sector. With the downturn of construction operations also due to the recession, the rising activity in the commercial property sector will ensure that past recession vacancies will soon be filled; while the demand for new commercial space increases and investment can be aimed at the construction industry once again.
With that said, there is still gradual ongoing activity in construction – with new commercial developments consistently changing the landscape of the CBD’s as well as decentralised nodes in which they occur. The Cape Town CBD, Johannesburg nodes of Sandton, Rosebank, Bryanston and Midrand, as well as Durban hotspot, Umhlanga, may not be experiencing development in hyper-drive, but it is persistent, albeit a slowed-down version of the development that took place in the early part of the 21st century.
A consistent interest rate and (hopefully) sustained economic growth could mean the realisation of the anticipated commercial property sector recovery. And if history repeats itself, there will be cause for celebration as the commercial property sector reaches new highs in the mid-term – commercial players need to weather the storm and their perseverance will be rewarded.
Submitted by Jade Paviour