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Indicator Watch for the South African Commercial Property Market Cycle

July2012

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INDICATOR
Cycleposition Summary

%CHANGE/ CURRENT

Movement
onPrevious Month(*)

IMPACTONTHEPROPERTYMARKET

GDPGrowth

There is still a strong indication that property investors are struggling to maintain tenants and keep vacancy rates at acceptable levels. This is occurring in an economic environment that seems to show little improvement. The retail sector has strengthened somewhat, but market commentatorsaresuggestingthatthiscouldbeshortlived. The slowing of GDP growth in the first quarter is a function of mounting uncertainty and most global 2.1% markets cutting spending across the board, hurting our exports. With banks and countries facing Q12012 continuedcreditratingcuts,anyfundingwhichmaybeneededtoassistfailingfinancesinbothprivate QOQ andpublicentitiesisbecomingincreasinglyscarce.Investecplacesthechancesofaglobalrecessionat (Unadjusted) 40%. 8.5%Prime Current 5.5% June2012 Current 4.2% May2012 YOY 6.4% May2012 YOY

InterestRate

TheDecisionbytheSAReserveBanktodecreaseinterestratesby50bpbodeswellforthesectorand shouldprovideastimulustoconsumptionexpenditure.However,itmayalsosuggestthattheReserve Banksawtheneedtoprovidestimulustoanailingeconomy. InflationcontinuedtofallinJune,thistimeby20bpfollowinga40bpdecreaseto5.7%intheprevious month. Although the downward pressure in the inflation continues to surprise commentators, it is possiblyareflectionofaslowingeconomy.Forthesector,thepotentialcontinuedriseinadministered pricesremainsimportant. Manufacturing Production improved this month, following a marginal improvement in the previous monthandsubduedactivitysinceOctober2011.Theindustrialsectorcontinuestoreceiveconsiderable development attention by the sector as retailers and industrialists seek more efficient locations and properties. RetailssalessawaturnaroundinMay,aftergrowthfellsignificantlyinthepreviousmonth.TheFNB/ BERConsumerConfidenceindexhoweverenterednegativeterritory(3)inQ2;thelowestlevelsince 2008whichhasweakenedprospectsfortheretailsector.

InflationRate(CPI)

Manufacturing Production

RetailTradeSales

4.3% May2012 YOY 30.64% July2012 YOY

July2012

ABSAHousePrice Index

Contraction of house prices for mediumsize houses according to ABSA has slowed marginally in May, followingarevisedcontractionof4.8%inthepreviousmonth.Thebankexpectshousepricegrowthto remain subdued over the short to medium term, due to the adverse effect of continued economic uncertaintyonconfidencelevels,consumersriskprofilesandhousingsupplyanddemand. TheListedpropertysectorcontinuestoshowastrongperformancewiththeindexhavingincreased30.64 yoy.Theindexincreasedfrom448.68(1/7)to489.35(1/8).Therecentreportingperiodsawmostfunds emphasizing the need to control operating costs and remaining focussed on the risk of rising vacancy rates. Building Plans Passed for residential buildings grew at a quicker pace than in April where 1.03% was registered.Thedimoutlookforhousepricesmeansthattheoverallresidentialmarketwilllikelyonlysee activityinsomehighendareas,withdevelopersexpectedtoholdbackfortheshorttomediumterm. Inlinewithlowmarketsentimentandweakhousepriceperformance,supplyintermofPlansCompleted remainedweakthismonth,upmarginallyfrom1.21%inApril. FollowingalargespikeinApril,growthofPlansPassedinthecommercialsectorreturnedtoalevelmore inlinewithmarketconditionsthismonth.Whilesomedeveloperswillbebracedfortherecovery,having already identified opportunities, large scale economic uncertainty will be keeping them firmly in the startingblocksfortheshorttomediumterm. SupplyintermsofPlansCompletedstayedstrongthismonth,hoveringaround50%.Thisiscomingoffof a low base though and strong growth in thesupply of commercialproperty is unlikelyuntil we start to witnesssomefirmimprovementinmarketfundamentals. TheMFA/BERbuildingcostindextickedupwardsinQ12012fromarevisedfigureof10.3%inattheendof 2011.Thisissomewhatsurprisinggiventhestateoftheconstructionindustrybutindicatesthattheslight improvementsinconstructionactivityinsomenodesandinfrastructuredevelopmenthadapositiveimpact forthebeginningof2012.Theremainderoftheyearremainsuncertainthough. TheCementandConcreteInstitutehasbeenallowedtopublishstatisticsoncementsalesagain,butona quarterly basis only. Sales are performing relatively well considering the state of the construction industry, although state infrastructure projects are likely to make up a large portion of business for cementproducers.Q1growthisonlyslightlydownongrowthof7.1%inQ42011.Considering2011saw overall growth of only 3.3% compared to 2010, this performance is a good sign for the construction industry.

JSEListedSector IndexJSAPY BuildingPlansPassed (Residential)Real Terms BuildingPlans CompletedReal Terms(Residential) BuildingPlansPassed (Nonresidential) RealTerms BuildingPlans CompletedReal Terms(Non residential)

7.48% May2012 YOY 1.73% May2012 YOY 2.52% May2012 YOY 49.21% May2012 YOY 13.5% Q12012 YOY

BERBuildingCost Index

CementSales

6.7% Q12012 YOY

July y2012

Mov vement of the Wehadlittlereasonatthisp pointtomovethe commercialpropertymarketfrom 6oclockand9oclockrange.The retailsectorleads stheway, followedbytheindustrialandofficesectors. Prop pertyClock Quo oteoftheMonth h GraphoftheMonth h (see ebelow)
PICChiefExe ecutiveEliasMasile elaGiventhesiz zeofthefund,wefeelweareoverc concentratedinSo outhAfrica The Graph o the Month show nonresidential plans passed over the past seven years and Q1 20 according to S of ws n 012 Stats SA. Plans passed are a leadingindic catorforthecomm mercialpropertyse ector.Asillustrated dinthegraphindu ustrialactivityhass slowedconsiderab blypossiblysuggestingthat thesectorwillnotfacethelevelofoversupplyfo orexamplebeinge experiencedintheofficesector. ABSA,FNB,C C&CI,BER,IPD,SAP POA,StatsSA,Kag giso/BERPMI (*)Note:Ag greenarrowcanm meanthatthefigu ureisstillnegative e,butisimproving

Sources

NonReside entialPlansPas ssed

Vi irulyPropertyC Clock

StatsSA VC S