Interview: Marc Wainer
How substantial is the appetite for listed property funds as an asset class at present?
MARC WAINER: Compared to a market like the UK, South African investors tend to be yield-sensitive and less concerned with net asset value (NAV). I believe the sector is overheated and trading at too high a premium to NAV. Analysts will counter that this is not the case, with South Africa’s property market over the past decade outperforming cash, equity and bonds by a big margin. If you look at the top four or five shareholders in most listed property funds, it tends to be the same group of top asset management firms investing their retail and wholesale deposits. These companies are enjoying huge inflows from local and global clients chasing yield. There is an almost endless appetite for new listings, with most funds oversubscribed irrespective of quality. So long as these firms sustain their inflows and the global outlook for interest rates remains low, the listed property sector should continue to grow.
What factors are having the biggest impact on demand specifications for office space?
WAINER: So long as GDP growth remains below 3.5% there will be muted demand for new office space. It is currently a case of musical chairs, with tenants taking the opportunity to upgrade into Grade-A premises in a more competitive rental environment. The result is that older Grade-B space is becoming vacant, with premium space in attractive office nodes most in demand. In the premium-grade space, green buildings are for the first time in South Africa becoming a core consideration for corporate clients. This is partly to project themselves as environmentally concerned and partly because electricity prices are rising dramatically and people understand that it is worth paying more today for utility savings later. While new tenants are willing to pay more for offices that meet green building codes, rising electricity prices limit what can be charged to existing tenants when rents are due for renewal, as rising power bills paid to the municipality factors into their total cost of occupation. Another factor potentially making a difference is public transport upgrades, although the jury is still out over whether white-collar employees in South Africa will stop bringing their cars to work. For any premium building, tenants require a parking bay ratio of 6/100 sq metres.
In which segments of the retail market do you see the strongest growth opportunities?
WAINER: Retail in outlying rural areas is the most defensive property play a developer can have, as no matter what happens to interest rates and the rest of the economy, people will continue to receive and spend government social grants. We are also experiencing strong growth in retail centres catering to the lower living standards measure segment at train stations and minibus taxi ranks. These come in the form of very nice shopping centres equivalent to what you would find in the more affluent suburbs. The main difference is that because they are commuter rather than destination shopping centres, spend per head is much lower as shoppers are purchasing in baskets rather than trolleys, due to storage and transportation constraints. Nonetheless, spend per head is growing at 15% per annum – compared to 4-5% for malls in more affluent suburbs – and cash-end retailers looking to expand their footprint are queuing up for space in these new developments.
While there are fewer opportunities in urban and wealthier suburban destinations due to saturation, there is still room for better differentiation. People label South Africa as over-shopped, but I feel that it is underrepresented. Customers lack choice, as the tenant mix in one mall tends to be the same as in others. Over the past few years, we have seen the arrival of international retailers like Zara, Topshop, Hugo Boss and Louis Vuitton, and this will differentiate centres and boost retail as customers have more choice. Also, developers will not be held to ransom by the small group of dominant multiple-brand retailers that in the past, given the lack of alternatives, you had no choice but to deal with.
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