Absa Commercial Property Finance is proud to sponsor the publication of the MSCI South Africa Annual Property Index. The results presented are a unique source of empirical data reflecting the performance of the property sector in South Africa. The Index is based on asset level data collected from a sample of 2,566 properties across 29 portfolios with a total capital value of R443 billion as at the end of December 2019. This represents approximately two thirds of professionally managed investment property in South Africa.
The results show that the South African property investment sector delivered an ungeared total return of 7.9% in 2019. This is down from 10.1% in 2018. The softening in total return recorded for 2019 was driven by a decline in capital growth of -0.3% relative to the 1.6% recorded for 2018. As expected, the first decline in capital growth since 2002 was a reflection of the tough macro environment and increasing pressure on operating income growth driven by slowed demand and high administered cost inflation. From a sectoral perspective, the industrial and residential sectors experienced marginally positive capital growth; demonstrating the defensiveness of these assets.
At an overall level, the South African commercial property vacancy rate increased 40 basis points to 6.8%. The lower occupancy rate had a negative impact on base rental growth and provided further impetus to cost efficiency programmes, aggressive tenant retention strategies and improved cost recoveries. Taking a forward-looking view, trends show that properties with longer leases outperform their peers in tougher times, while properties with shorter lease lengths will tend to outperform going into stronger economic times.