COMMERCIAL PROPERTY: Cap Rates Demonstrate Commercial Property Resilience
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According to Broll’s Carl von During, in the last 12 months, prime commercial properties’ capitalisation rates have remained largely unchanged, signalling a good level of confidence in the current market.
“This trend is primarily evident in Premium or A Grade properties with single tenant, longer term leases,” says von During.
This limits investors’ concerns about rental declines. Capitalisation rates are sensitive to risk, notes von During, and properties with short-term leases, especially where rentals exceed current market rentals, are considered high risk and capitalisation rates on these properties which were between 9.5 and 10.5% a year ago, are now 0.5% to 1% higher,” explains von During.
In the latest Broll Annual Property Market Report, published in October 2010, in the previous 12 months, capitalisation rates for premium office capitalisation rates were between 8.25% and 8.50%, with A-grade offices at 8.75% to 9.50% and B-grade offices at 9.50% to 10.50%.
Capitalisation rates for shopping centres vary over the last 12 months, with community centres (12,000sqm to 25, 000sqm) faring at 9,5%; small regional centres (25,000sqm to 50,000sqm) at 8.75%; regional centres (50,000sqm to 100,000sqm) at 8% and super regional centres (larger than 100,000sqm) at 7.5%.
“Capitalisation rates are an excellent indicator and they reflect the confidence in well located and managed buildings where sound leasing management is in place. Importantly, they highlight vulnerable investment areas too,” adds von During.
Broll’s report also states that the stability of the South African property investment and leasing market puts it ahead of scores of other economies, with many other global economies experiencing a ‘bumpy, but improving’ climate, with gradual strengthening only forecast for 2011.
Capitalisation rates for office properties in other developing countries in Africa are 10% for Ghana, 9% for Kenya, 8% for Malawi and 10% for Namibia and 14% for Nigeria, while rates for retail properties in these countries are at 8%, 11%, 7%, 9% and 9% respectively.
Broll is a multi-disciplinary property services company with over 35 years experience in the property industry. Its services include property, shopping centre and facilities management as well as sales, leasing, valuations, retail consultancy, corporate real estate advisory services, research and investment services to the retail, commercial, industrial and investment markets. Broll is part of the CB Richard Ellis Network.
Business News Sector Tags: Property|