SA's commercial property sector has been innovative and adaptive over the past decade and is expected to perform even better over the next 10 years thanks to consistent income growth driven by economic growth and declining vacancies, property pundits said this week.
They said listed property offered better earnings visibility and certainty due to the leases being signed for three to four years on average, with rents increasing at about 8% a year. Listed property companies pay out virtually all their profits to investors as distributions.
With the listed sector adopting the internationally recognised real estate investment trust (Reit) structure, the next decade is likely to show the sector as even more resilient.
Figures from Investment Property Databank (IPD) show that over the past 10 years, property in SA, both listed and unlisted, delivered compound total returns - income plus capital growth - of 407%.
Investment performance in property over a decade is well ahead of bonds, which delivered total returns of 208% and cash, by 135%.
Investec Property Fund CEO Sam Leon said yesterday listed property had definitely come "of age" in the past couple of years.
"Listed property as an asset is now looked at by investment specialists and most hedge funds have a property specialist," Mr Leon said.
The listed property sector has grown from less than 1% of the FTSE/JSE all share index in 2002 to more than 3% this year. The rapid growth of the listed property sector, as well as new listings, have offered new opportunities for investors.
Stan Garrun, MD of IPD SA, said the past decade had shown the South African commercial property sector to be innovative and adaptive.
"We have never been at a more important crossroad as countries around the world reel from the European contagion having just emerged from the property crash of 2008-09. Elsewhere, political upheaval and economic recession continue to negatively affect the markets," Mr Garrun said.
"Thankfully, SA was able to avoid the ill effects of many of these global trends. We embark on the next decade as a resilient and well structured sector; though not without challenge," he said.
Property economist Francois Viruly said that in the past 10 years the South African property market had experienced the strongest property boom since the 1960s.
"Commercial property investors ventured into new areas like SA's townships and, more recently, across the African continent.
"The sector successfully adapted to a difficult financial environment from the global financial crises," Mr Viruly said.
He said commercial property also effectively responded to operating cost increases exceeding the inflation rate and rental increases.
Stanlib head of property funds Keillen Ndlovu said the South African listed property sector changed from an "untouched and unloved" asset class in 2002 into the most respected asset class this year. He said listed property had been supported by consistent income growth, which has been driven by a combination of economic growth and declining vacancies in underlying property portfolios.
Office vacancies have fallen from about 23% in 2002 to about 10% this year. Overall, commercial property vacancies across the office, retail and industrial sectors have fallen from about 13% in 2002 to about 7% this year, Mr Ndlovu said.
The adoption in SA of the Reit structure for financial regulation and tax purposes, due early next year, is expected to lift foreign investment in the local listed property sector from a low of 3%.