Growthpoint, SA's largest commercial property owner, says the surge in municipal rates and taxes aren’t being met by any improvements in service delivery.
The group, which has a portfolio valued at R170bn, said in its 2024 annual report that municipalities’ failure to deliver proper basic services have necessitated substantial investments in technology, water and energy.
“Despite a notable surge in rates and taxes, local authorities and city councils are not meeting expected service delivery standards,” the group said.
“Landlords are compelled to undertake proactive measures to ensure the continued viability of their properties and to attract tenants. Property operating costs as a percentage of gross income continued to increase, exerting pressure on property owners’ net income.”
Property owners are increasingly concerned about water shortages and the affect on their portfolios.
Business Day reported last week that Attacq has started a project to manage being without water for as long as five days as shortages become a feature in Gauteng, where its assets are concentrated.
Redefine announced plans in July to spend more than R200m on new water tanks to ensure a reliable supply of up to five days for its properties in the region.
Growthpoint said it expects consumer demand will improve by the end of the year and into 2025, supported by an increase in disposable income as a result of lower inflation and interest rates, which will specially benefit retailers.
The group said the government of national unity has sparked renewed interest in SA assets as investors are optimistic about the prospects for stability and inclusive governance. However, it noted there are concerns that ideological rifts within the administration could impede the creation of a stable policy framework.
The Russia-Ukraine war created volatile commodity price hikes and disruptions to global supply chains, fuelling inflation and affecting international markets.
Growthpoint said it is “cautiously” optimistic about the future as lower interest rates and inflation could improve market conditions in 2025.
The company reported a 10.3% decline in distributable income to R4.81bn in the year to end-June, which it said was due to high interest rates that saw the total cost of funding increase by 16.2% to R4.39bn.
Besides high inflation, Growthpoint said geopolitical tensions had fuelled uncertainty in markets globally and disrupted supply chains.
“The real estate sector was resilient despite economic challenges. The Russia-Ukraine war created volatile commodity price hikes and disruptions to global supply chains, fuelling inflation and affecting international markets,” the group said in its annual report.
In the UK the real estate market experienced significant fluctuations in 2023, largely influenced by the economic backdrop and high interest rates, it said.
While inflation was coming down, bringing some relief to consumers, structural changes such as the rise in remote work created uncertainty in the office sector, Growthpoint said.
“The logistics and industrial sector benefited from structural and thematic tailwinds, and capital values recorded modest positive growth. Retail was more resilient than expected, with changes in consumer shopping behaviour propelling discount retailers upward.”
However, investment volumes were much lower as a result of the gap between buyers and sellers' price expectations, which led to less activity in the market.
The Australian real estate market also showed resilience despite economic fluctuations and inflation.
“Higher interest rates affected commercial property values, while office vacancies increased due to changing work patterns. The logistics and industrial sector performed well, driven by e-commerce growth and the demand for distribution entrées. Inflation affected consumer spending, and discretionary retail experienced some stress over the year,” the report stated.
The outlook is positive, with inflation and interest rates expected to decline further by the end of the year and into next year, Growthpoint said.
However, conditions remained challenging for property companies in SA due to subdued economic growth, elevated interest rates, the impact of load-shedding and rising operating costs.
“The logistics and industrial sector are benefiting from rental growth and low vacancy rates, particularly in logistics and warehousing. The office market remains oversupplied, resulting from the work-from-home trend and poor economic conditions. The retail sector remains challenged by constrained retailers and consumers.”
Persistent load-shedding and water shortages in the first half of 2024 severely disrupted trade, particularly in the retail sector, leading to rising operational costs for property owners.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.