Transport corridors present the 'next big property opportunities'

October 05, 2011

The next big opportunity in the property market would be along the transport corridors within cities and that linked cities rather than in circular nodes, said Francois Viruly, a property consultant and professor at the School of Construction Economics and Management at UCT.

This was already evident along all the transport nodes in all the metropolitan areas in South Africa, such as around the Gautrain, he told an SA Property Owners' Association broker's forum last week.

Viruly said new cities would develop in South Africa and with urbanisation there would be an additional 10 million people in Johannesburg, which would lead to an increased need for high density housing.

"This means the residential property market will start competing with the commercial property market for space. There will be many more opportunities, especially on the outskirts of the central business districts, and double storey shacks because land will become more valuable as property prices increase."

Viruly said the increased population in cities would lead to bigger retail centres and new opportunities, adding the property market environment in the next 10 to 15 years would be one where public transport played a role in providing commercial property opportunities and Chinese investors moved into the market.

He said the property market now played a more prominent role in the country's economic policy and the Reserve Bank was paying more attention to this market because it did not want to see another boom.

However, Viruly said in the longer term there would be important structural changes in the market with the commercial and residential markets competing more for space.

Viruly said much work had been done on social housing in central business districts by converting vacant offices into residential but the prices were now too high for the market.

He anticipated old industrial estates would be the focus for residential opportunities.

Viruly said a slowdown in the economy made it extremely difficult for the commercial property market to perform because tenants could not afford higher rentals.

He said there was a very clear correlation between the economy and the property market, adding that the moment the economy "kicks up 1 percent" it increased property market returns by 3 percent. However, he said the property market only started moving again after four consecutive quarters of economic growth.

Viruly said the South African property market had a natural vacancy rate of between 7 percent and 8 percent and at the moment vacancies were above this level, which meant rental increases would not beat inflation. Viruly expected rentals to start exceeding inflation from the third quarter of 2013 and an increase in construction from next year onwards.

Viruly said brokers should not expect to do many deals involving new developments because the property market was still in the cycle of mopping up vacant space. Big new developments, such as major office towers, would not come to market until 2014, 2015 and beyond.