Like the residential property market, the commercial property market in South Africa is primarily driven by demand. This demand itself is driven by various economic factors as well as population growth and consumer behaviour. Here are some insights that are essential if you are thinking of adding commercial and industrial properties to your investment portfolio.
Commercial and Industrial Property Drivers
Economic growth is one of the primary drivers of the commercial and industrial property market in South Africa. Essentially, a strong market drives growth in specific industries – most notably, logistics – as demand for materials used in manufacture and imported goods as well as construction increases. Transport stocks then rise as business and earnings increase, leading to more jobs. As a result, demand for warehouse space, office space, retail space and other commercial space rises too, making commercial and industrial property a rewarding investment.
In the last few years, the commercial property market has been a tough one to crack. Affected by the country’s poor economic performance, lowered credit ratings and a wide range other major political and social events. In 2018, the feeling is more hopeful despite a looming trade war between the giants of the USA and China. Both the mining and manufacturing sectors performed poorly in the first quarter after a particularly strong performance at the end of 2017, with GDP shrinking by 2.2%. Economic growth for 2018 is predicted to be around 1.7% this year, under the goal of 2% pa.
So, is commercial and industrial property investment in South Africa a good idea? There are signs that it could be. International credit ratings are remaining stable and economic growth is expected to strengthen through the year. Domestic demand is still strong enough to deliver the economic growth we need and many of the problems that caused the first quarter contraction were once-off issues. Much will depend on the performance of stronger international economies and the outcome of trade conflicts, so while it may seem like the time is right to strike for a bargain, the key is to remain cautious and utilise all your resources before taking the plunge.
Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/