THE Cape Town property sector should remain vibrant for 2006, according to a presentation made by Nedbank Corporate Property Finance last month.
Nedbank's Timothy Irvine said the buoyant local economy and demand by investors and owner occupiers for properties in the commercial, retail and industrial sectors had resulted in continuing downward movement of capitalisation rates. "This is still giving confidence to the property market as an asset."
Irvine said the Cape Town CBD and Waterfront played key roles in driving commercial development in 2005.
He said in 2005 the CBD experienced an increase in new developments and major refurbishments of older buildings – mainly conversions of old office buildings into upmarket residential apartments.
"We foresee this trend easing off in 2006, and with the vacancy factor dropping from 10% to 4.3% in the office market, we expect increased demand for A and B grade office space."
Irvine reckoned the buoyant Cape economy would push rentals to higher levels, challenging developers to source suitably zoned land for feasible developments in the CBD.
Turning to the Waterfront, Irvine said that taking cognizance of the recent uptake of office space in 'this world class facility node' in 2005 the demand for office space would become stronger. But he warned that the uptake would be underwritten by higher rental achievements that would stimulate the feasibility of new developments.
Irvine said the view for the Northern suburbs had changed for the better too.
He disclosed that property owners of A grade office space in Century City had seen vacancy levels drop from 13% to 1.5% in the past year. "This again underlines confidence in Cape Town's northern nodes, and we expect further growth within this commercial sector."
On the industrial front, Nedbank noted that the Cape market over the past year had witnessed rapid growth driven by strong demand for industrial space by owner occupiers and investors alike.
Irvine said major areas of growth for 2006 would include: Airport Industria, Montague Gardens, Killarney Gardens, Brackenfell, Maitland, Paarden Eiland, Parow Industria, Westlake, Capricorn Park and Somerset West.
"We have seen the value of vacant land more than double in a year in some of these areas."
Obviously the retail sector of the Cape property market surged ahead in 2005 as well (see separate story on Canal Walk in this issue).
Irvine listed successive personal tax reductions, the benefits of low inflation and low interest rates, real wage growth as well as increased spending by the black middle class as the main drivers of the retail property sector in Cape Town.
He said the Western Cape had over the past two years seen a rapid growth in shopping centres in nodes of urbanisation of all income levels.
"We have financed many of these new centres, be it of regional, community, neighbourhood and convenience type centres…there are very keen capitalization rates obtained for these centres when sold."
At residential level, Nedbank said 2005 was a year of incredible development activity. Irvine said the main challenges were securing appropriately zoned land with the necessary development rights and the rising costs of construction (increases in excess of 25% year on year).
Nedbank's development loan book into the residential sector increased by more than 60% in 2005 (see accompanying story on Nedbank Corporate Property Finance).
"For 2006 we still see significant activity, but at the lower end of the residential market. We see the sales rate normalising, and fewer 'sell-outs' on launch."