BMI View: The sluggish nature of the South African economy has created uncertainty for businesses, leading to a drop in investment activity. Nevertheless, the office commercial real estate sector has performed well, with good demand for premium grade units. An upward trend in retail sales indicates long-term potential for retail real estate, and regarding the industrial sub-sector, there has been a rise in industrial real estate acquisitions as companies seek to diversify their portfolios.
South Africa is afflicted with high levels of poverty, rising unemployment, low consumer confidence and the possibility of a recession. Real GDP growth has fallen in recent years and in 2015 is forecast at 1.4%, down from 1.5% in 2014, sparking fear of a recession as the economy struggles to recover from the longest drawn-out industrial action since the end of apartheid and weak overseas demand. We believe interest rates will rise, while high electricity prices are contributing to high inflation. Electricity blackouts have also raised costs for businesses, as has labour unrest, and there has been little response from the government to make the necessary reforms to avoid a further deterioration in the business environment. Nevertheless, South Africa remains one of the best developed economies in the continent, with significant imports and exports, and will retain significant investor attention, although we see a large proportion of players holding off until the economy begins a clear recover.
Concerning city trends, Johannesburg is central to South Africa's development and recovery, and has a highly developed office real estate market with a gobal financial services industry. Steady retail sales indicate potential for commercial developers. Cape Town, on the coast, is a significant trading city, which should spur industrial real estate developments in the wake of economic recovery. Durban, another port city, retains a prominent manufacturing centre.
We see the office sub-sector as having the most potential for market players in light of continued declining vacancies and rising demand for premium grade property. A well established financial industry with global reach keeps demand buoyant and we expect rental rates to continue to rise. However, the lack of available development opportunities in central business districts (CBDs) have seen developers and managers look to satellite cities and more outlying locations.
Retail real estate should be buffered from the economic slowdown as surprising (growing) retail sales are indicative of the potential for development or acquisitions further down the line, once the business environment begins to pick up again. Currently there is good demand for clothing and footwear retail units, with such retailers having often outperformed the overall market. However, short-term demand will remain muted as consumer confidence dwindles, and uncertainties regarding inflation and an interest rates rise deter potential tenants.
Manufacturing gross value added is declining in terms of its contribution to the South African economy, and so is demand for industrial real estate from this segment, as a result lack of business interest and the effects of the global economic slowdown on exports and import levels. However, short-term market trends reveal a number of companies demanding warehouse and logistics property, and we expect this to remain the case in light of growing trade and retailer demand for distribution facilities. The development in this particular sector will be proportionate to the developments in the economy, and we expect opportunities for market players as we enter 2016.
As the economy makes a tentative recovery, we highlight the potential in the real estate investment trust (REIT) market. There are a number of corporate REITs listed on the Johannesburg Stock Exchange (JSE). Greater sectoral diversification combined with a developing market will see more interest from overseas investors, as the market matures.
Overall, we see the greatest potential in the premium office and retail markets, with a significant proportion of the focus on the capital, Johannesburg, as a result of its developing demographics and services industies.
The South Africa Real Estate Report features BMI Research's market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.
BMI's South Africa Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in South Africa.
- Benchmark BMI's independent real estate industry forecasts for South Africa to test other views - a key input for successful budgeting and strategic business planning in the South African real estate market.
- Target business opportunities and risks in South Africa through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
- Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.
Industry Forecasts Outlook
Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.
- Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
- Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
- economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).
BMI’s Real Estate Risk Reward Index
BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.
Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors
Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.