Property values head north in South Africa as Johannesburg outperforms London, New York and Eurozone crisis drives returns in new safe-havens

It claims to be the lightning capital of world, but however dubious this title may be, Johannesburg has avoided being struck by the global property crash as its offices, shops and warehouses outperformed those in every other global city outside of South Africa over the last decade.

Commercial property is a key measure of economic vitality, since strong retail, leisure and industrial performance encourages investors such as pension funds to buy up buildings to earn income through rental income and capital value increases.

Capital value appreciation in Johannesburg has hit 7.5 per cent over the ten years to 2011, compared to 3.6 per cent percent for New York, 2.2 per cent percent for London and -0.1 per cent percent for Munich over the same period. 

Like Johannesburg, Sydney, Melbourne and Seoul remain (relatively) untainted by European contagion and investor appetite has been growing in these locations. 

However, despite their growth over the last ten years, 2011 saw returns in the more conventional investment locations of London and New York improve considerably, as investors searching for safe havens put increasing pressures on limited stock. Last year, values in London rose by 6.0 per cent, in New York by 8.6 per cent and in Munich by 3.6 per cent - whilst in Johannesburg saw growth slow to just 0.4 per cent. 

Peter Hobbs, IPD’s senior director, said, “The picture for global real estate is a tale of havens and have-nots. Institutions want safety, and at the minute, that means low-yielding prime office or retail in safe haven pockets around the world.” 

“As a result, there’s been a real polarisation between the likes of Dublin and Madrid against the financial centres of London and New York, and the commodity rich cities of Calgary, Perth and Capetown.” 

“Unlike gold or other commodities, real estate is a living, breathing asset that generates income through its tenants. Properties with good leases held by strong tenants tend to be attractive to institutions sheltering from the volatility of global markets.” 

“It is for these reasons that these two different types of market have tended to perform well over the past couple of years. On the one hand, the financial centres of London and New York benefit from the quality of real estate and tenants as well as market transparency and liquidity that has attracted capital from many global investors. On the other hand, the commodity-driven cities of Australia, Canada and South Africa have benefited from the strong fundamental demand for real estate in these markets.”

 

Article by http://www.sacommercialpropnews.co.za