South African Property Market

The property sector has being negatively impacted by concerns about local and global economic growth, due to uncertainties caused by conflicts in Gaza and Ukraine. In addition radical climate changes, have caused devastation in areas of both the west and third world countries. With the GNU in place, and appraising the diverse parties appealing to appearing to be co-operating the sector and economy will hopefully receive stimulus in the months ahead especially if interest rates begin a downward movement. Although the sector performed better in the last two quarters of 2024, property fundamentals such as vacancy rates, rental levels, lease contract terms and tenant reversions still place pressure on property groups. A improvement in energy delivery by government over the second quarter of 2024 has slightly impacted the property market positively and given more certainty to tenant operations.

The market still has not recovered to those levels last seen pre Covid19, and the property sector continues to be the worst performing sector on the JSE for the majority of this period. With the GNU now in place and the various diverse parites appearing to be co-operating the sector(and economy) will hopefully receive a stimulus in the months ahead. This effect will be positively compounded as interest rates begin in a downward move.

Portfolio Summary

The Putprop property portfolio at 30 June 2024 consisted of 13 properties (2023: 13) including five properties held for resale with a total market value of R1.109 billion (2023: R1.095 billion) and a gross lettable area of
97 601m² (2023: 97 601m²). The portfolio is valued annually by an independent external valuer. Refer to note 5 in the annual financial statements.

A valuation increase of R12.9 million in the current year (2023: down R36.6 million) was recorded. Ageing properties like Putcoton and Lea Glen were again written down, but not to the extent of previous years as well as those properties where future contractual income may become problematic.

Office

The office market is still significantly depressed. The national vacancy rate for A and B grades has improved slightly. Rode equates this to a rate of 14.7% still way above the long-term average of 8.8% (back to 2000). This slight improvement in vacancy rate comes at a cost with rental growth declining by 1.6% year on year after accounting for inflation. The oversupply of available space allows tenants to negotiate fantastic deals including low rentals, high tenant installation allowances and long beneficial occupation periods.

A small positive is that the decline in rentals has reduced gradually over the past 12 months. However, in real terms, rentals still fell by more than 10%.

Retail

The trend of strong retail sales seen in the last quarter of 2023 began to fade in the second quarter of 2024. With the advent of more unfavourable local economic drivers – high interest rates, high unemployment, and high inflation.

As consumers come under increasing pressure, necessities will dominate, and any spend seen as a luxury or dispensable will decrease. We expect this trend to continue until interest rate relief occurs. However confidence shows signs of recovery after the successful implementation of the Government of National Unity.

Industrial

The sector continues to be well placed with rental growth of 4.8% (Rode). The recovery in the manufacturing and retail markets contributed to this sector outperforming all other sectors. Logistics continues to do well which should support the sector going forward, as the online sales expansion shows no sign of easing. The pandemic accelerated this trend.

Two properties have been identified as held for sale.

Residential

Vacancy rates were high, with a national average between 9 - 10.5%. House prices in real terms fell by 2-3% already in 2024 due to the high inflation rate. All indications are that this trend will continue for the year. This means that for the seventh consecutive year residential prices have declined. 

We expect this sector to grow at a low nominal rate over the next 2 years due to a weakening economy, unemployment pressures and high interest rates. Real house price growth remains distant.

This property has been identified as a non-core asset and is currently held for sale asset.