Before you invest your hard-earned cash into commercial property, why not take a moment to assess whether now’s the right time to buy?
As a new investor in the commercial real estate sector, it can be challenging to call the right time to invest in an office block or warehouse. JLL SSA has released its 2016 Investment Review of the South African property market, though, and it seems that the market for buyers is booming. The firm’s analysis reports a R28.8 billion rise in investment (from R18,5 billion in 2015). The market is recovering and investors, once again, trust the market. But what does this mean for you? Is now the right time to invest or not?
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The property market saw a notable 55.2% increase in investments during the year and a similar 52.8% increase in gross lettable area. Revealing that investors have confidence in the market, and so should you.
Here are three questions you need to answer when deciding whether to invest in commercial property:
1. How is the market I’m looking at really doing?
JLL SSA Head of Research, Zandile Makhoba reports that investment growth in 2016 is the highest the company has seen in the past five years. This is an interesting turn of events considering the perceived over-supplyamongst 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. Investors are looking to upgrade existing buildings and improve their value, rather than break new ground,” says Makhoba.
When you’re searching for property to invest in, why not consider properties that are in sort after areas. When shopping for retail space in particular, it might cost a bit more to buy into the popular established spots, but if the area you’re looking at promises growth for a few years, you’re guaranteed a return on investment.
2. Where should you invest?
Different areas of the country are more sort after and have a higher demand when compared with others. You need to know which provinces to invest in, to ensure your commercial property never stands empty.
According to the report, Gauteng still dominates, accounting for 50% of the total investment value in the year assessed. On the other hand, KwaZulu-Natal and Western Cape showed stronger investment growth, both more than doubling the investment levels of 2015. When answering the question of where you should invest, keep in mind that while many people are investing in these areas, it also means there will be competition for space.
3. What type of commercial property should you invest in?
There are various commercial properties you can invest in. They go through a cycle of being in demand and not being in demand. According to the report commercial office space investments continue to show healthy growth.
A total of R8.3 million was invested in existing office stock, which is a growth of 8.9% year on year. The report also reflects that interest is returning to retail property in key metros, after three years of growth outside the major metropolitan areas. There has also been 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%”, says Makhoba.
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This means that commercial office space continues to grow, while retail property growth is starting to pick-up, and industrial real estate investments is experiencing double digit growth at the moment. If you’re going to invest in commercial real estate ensure you know everything there is to know about the sector (and location) you’re entering and what tenants in that sector are looking for, or you might sit with no ROI to show.
- Investment growth in 2016 is the highest JLL has seen in the past five years.
- Gauteng still dominates while KwaZulu-Natal and Western Cape showed stronger investment growth.
- Office space investments continue to show healthy growth, interest is returning to retail property in key metros, and industrial property experienced double-digit growth.