Oct 29, 2007:
The globalisation of the commercial property investment market is something that has been gathering pace for the last few years.
This is according to Tony Bales of Bales Delaporte Commercial Property Dealmakers, who says that it is only recently that we have seen the larger worldwide players actually starting to transact on our local shores.
However, the question remains: Are these once-off transactions or is this something South Africans need to get used to?
"During the last decade a lot of residential properties have been bought by foreigners, many of whom can be regarded as the international elite. These wealthy individuals and families holidayed on South African shores, playing golf and drinking our local wines."
"However, more recently, some of the world's top property investors have been seen discreetly eating out at restaurants or enjoying the bush and the beaches," says Bales.
"The good news about South African lifestyle and property has been whispered around the world and many businessmen are now considering increasing their investment in South Africa to beyond that of just a holiday home."
Bales advises that these larger international commercial property investors will only look at meaningful investments of about R100m or more.
"If their South African holiday homes cost as much as R40m, then a commercial investment of R100m really is a small portion of their wealth. Many have stated that it is not worth investing less."
Bales tells of having met with a founder of one of the world's leading property companies at his Constantia holiday home.
"This investor only wanted to invest in prime retail property of R200m or above and his preferred type of investment was narrowed down to the main shopping centre in Constantia, or something similar. When told that if the centre did come on to the market, it would likely sell for close to R1bn, he said the size of the investment was not an issue as he had the funds available."
"In South Africa, direct investments in larger commercial properties are changing hands at prices equating to forward yields of about 7% to 8%. The JSE listed property sector is generally priced about 1% lower than this with an average historical yield of 6,5%," says Bales.
"Internationally, good commercial investment properties are selling at forward yields of 3% to 6%. While larger retail centres trade at the lower end of the yield spectrum, smaller investments, tenanted for example by banks with long leases, trade at forward yields as high as 6%.
"International listed property companies are priced about 1% lower than their direct counterparts (average historical yield of 4,1%), depending on the asset profile of a fund. In the USA, for example, historical yield profiles range from 7,6% for a hospitality related fund down to 2,42% for a fund that is the largest office landlord in New York City."
With South African commercial property generally yielding double that of most of the more established international markets, it is no wonder many global players are looking at raising their holdings in the country.
"Until the adoption of the internationally recognised Real Estate Investment Trust (REIT) structure in South Africa, we will probably not really know what discount foreign investors will pay for commercial property in the country. One thing's is for sure, and that is that South Africa's commercial properties will continue to attract significant international interest as long as income yields are double those of other markets," Bales says.