We all know property remains a good investment despite the current economic uncertainty. The challenge is finding the right property to invest in when good quality stock is thin on the ground. Investors looking for sustainable, risk-averse results need to weigh up the pros and cons of building a top-grade greenfield development versus buying an existing property to improve.
The secondary market certainly presents a conundrum for prospective property investors. With owners holding onto prime quality stock as an inflation hedge, investors must decide whether to take advantage of good deals on sub-standard accommodation or wait for the investable stock to come onto the market at a premium price.
The crux is that the South African office market is in a tight spot. The right kind of stock is not readily available. Yes, there is development taking place, but a lot of it is non-speculative and the new stock is already spoken for. This makes for high levels of liquidity with plenty of buyers in the market. We are also not seeing growth in terms of occupiers, so competition for good tenants is tough.
And the outlook places even more emphasis on location. There are excellent opportunities for higher yields if investors can source a lower grade property in a superior position. What you save on capital costs can be re-invested in enhancements that are high on potential tenants’ checklists. Occupiers today want to do more with less. They are looking for cost-effective, green-efficient buildings that incorporate technology to assist with productivity. Analysis proves that there is strong potential in brownfields development.
A case in point is the Sasol building in Rosebank, Johannesburg. Sasol is set to relocate to a new Grade P building in Sandton, leaving a now-average property vacant. Should it come onto the market, this presents a good opportunity for a savvy investor with a long term view to secure an excellent foundation in an established commercial zone.
There is, however, no real hard and fast answer to the buy or build question. There’s certainly justification for both. The solution lies in evaluating each particular property to suit the investor’s specific requirements. What is certain is that now is a good time to get your property plans in place so you are prepared for the upswing when it happens.
For more on commercial real estate investment, view the latest research from JLL South Africa.