The South African property market saw a 55,2% increase in investments in 2016, according to a new report by a real estate consulting firm, JLL SSA.

The 2016 Investment Review of the South African property market shows a R28.8bn increase in investment (from 18,5bn in 2015), and a similar 52.8% increase in gross lettable area (2 million square metres). 

Whilst portfolio sales contributed notably to this value, (key portfolio deals included purchases by Tradehold, Imbali Properties, Delta and Mendo) investments still grew by an exponential 28.0% if the Tradehold is excluded.

Zandile Makhoba, JLL SSA Head of Research, said that the investment growth in 2016 is the highest the company has seen in the past five years, which is interesting in the light of the perceived over-supply amongst developers in the market. 

“This is a good reflection of investors seeing value in existing fixed assets, as well as long term confidence in the economy. It must be noted that on closer inspection, we have seen a slowing in greenfield investments over the past few years."

"For instance, the growth in new commercial building plans has reduced from a peak of 25% in 2012. This is considered a mitigation against a potential over-supply, which could stifle rental growth as investors look to upgrade existing buildings and improve their value, rather than to break new ground adding new lettable area to existing stock,” she said. 

This report reviews investment activity in the South African commercial real estate market and analyses key trends observed from investment sales data.

From a geographic perspective, Gauteng continues to dominate activity, accounting for 50% of the total investment value in the year. 

However, KwaZulu-Natal (KZN) and Western Cape showed stronger investment growth, both more than doubling the investment levels of 2015.  

Industrial activity dominated KZN’s growth.

In the commercial office space, investments continued to show healthy growth in 2016. 

A total of R8.3m was invested in existing office stock, a growth of 8.9% on a y/y basis. 

Makhoba said that KZN recorded the most growth in the year with sales more than doubling at R781m. 

“Office investments are highly valued given the region’s potential, with the result that investors have adopted a hold-everything strategy in the city.”

On the retail front, in 2016 there is compelling evidence of transactional interest returning to key metros, after three years of growth outside the major metropolitan areas. 

Last year, 83 retail properties - the highest number of recorded deals since 2011- ranging from community to small regional malls were transacted.

“Overall investment value amounted to R7.18bn in 2016, with the Western Cape passing the R1bn mark with a value of R1.39bn in investments in the year”, said Makhoba. 

JLL’s 2016 Investment Review confirms a notable increase in 2016 industrial investment activity. 

“It was the only asset class to record double digit growth in completed new builds at 14%”, commented Makhoba.  

It also saw a 25% increase in number of industrial accommodation transactions. 

It is worth noting that there was major growth in interest in Eastern Cape properties, accounting for 44.4% of transactions in the other province’s category (excluding Gauteng, KwaZulu-Natal and Western Cape). 

This further emphasises the growing potential within the industrial sector. Another point of interest is the potential for brownfield investments in this asset class. 

Makhoba said that relatively lower building costs and the potential to expand and upgrade industrial properties is an investment opportunity, given the growing preference for maxi-unit accommodation. 

This is even more important in areas with limited or expensive land options such as Gauteng, KwaZulu-Natal and Western Cape.

Looking ahead, investors remain conscious of the economic climate which could affect their investment returns. 

Although forecasts for GDP show an improvement in the next three years, with the National Treasury anticipating a 2.2% growth rate by 2019, these levels are insufficient to stimulate significant employment growth, with far reaching implications for the broader economy.