BMI View: While concerns about economic performance and a deteriorating business environment are leading to a slowdown in investment, the developed nature of South Africa's economy as a whole and its and commercial real estate sector will mean that the sector continues to see investment and activity. Corporates will continue to seek premium office space, while development of new retail facilities across the country reflects rising incomes and long-term optimism about the sector. Meanwhile, the industrial real estate sub-sector is seeing increasing investment as property funds seek to diversify their interests away from a traditional focus on office and retail space.
Economic growth in South Africa has been slowing, with GDP growth of 1.5% in 2014, down from 2.2% in 2013. While we see this rising to 1.9% in 2015, growth will be muted over our forecast period to 2019, reaching only 2.7% that year. This below-potential growth reflects uncertainties in the economy that are causing investment to fall. High electricity prices are causing high inflation, and investors fear a rise in interest rates. Meanwhile, electricity blackouts are creating costs and uncertainties for business, as is labour unrest, while the government's unwillingness to make necessary market reforms is a further deterrent to investors. However, South Africa remains by far the most developed economy in the continent, and is a significant exporter and importer.
Johannesburg has a highly developed office real estate market, as it is home to a globally significant financial services industry. The city's developed retail market means that there are opportunities for retail and industrial developers are good. The port city of Cape Town's status as South Africa's second city, means that it has a strong commercial real estate market across the three sub-sectors that we cover. Durban, only slightly smaller than Cape Town, is also a port city and a significant manufacturing centre, likewise with a developed commercial real estate market.
Demand for office space in South Africa is expected to remain stable over 2015 and 2016. Clients are continuing to seek high quality space, reflecting the developed nature of South Africa's economy, particularly its financial services industry. However, as development opportunities in central business districts become fewer, we are seeing developers, real estate mangers and clients move to more outlying locations.
The outlook for retail real estate across South Africa is bright. Demand for shopping centre space remains good in major cities, and retailers have been expanding into traditionally underserved areas in order to take advantage of rising incomes and consumer spending. In the short term demand may be somewhat muted as consumers feel the impact slower economic growth, compounded by the uncertainties of high inflation and interest rates, but in the longer term South Africa's positive demographic trends should ensure that retail real estate remains an attractive investment prospect.
While the manufacturing industry's contribution to South Africa's gross valued added, and to demand for industrial real estate, is shrinking, we expect that the slack will be taken up by increased demand for warehouse and logistics facilities as trade grows and as retailer-led demand for distribution facilities increases. Opportunities for industrial real estate development will be most prevalent in locations serving significant population centres and with good transport links. In the longer term a number of current and planned infrastructure improvements, including port and airport expansions, will lead to fresh opportunities to serve new and improved transport facilities.
The South African commercial real estate market is dominated by local firms in terms of developing and managing properties, with a large number of firms active across the spectrum of commercial real estate. The country does, however, have a thriving REITs market, with a significant number of REITs listed on the Johannesburg Stock Exchange (JSE). As the REITs environment matures, we expect to see more investment from abroad. In terms of sectoral trends, we expect the REITs market to see greater specialisation, although in the real estate industry as a whole there is a parallel trend of diversification in geography, with a number of firms expanding elsewhere in Africa and beyond.