South African Office Sector as an Investment Opportunity

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SOUTH AFRICAN OFFICE SECTOR AS AN INVESTMENT OPPORTUNITY TABLE OF CONTENTS DECLARATION CHAPTER 1: THE RESEARCH BACKGROUND 1.1Introduction 1.2The research problem statement 1.3The research questions CHAPTER 2: BRIEF REVIEW OF THE RELATED LITERATURE 2.1Real Estate Investment as a Wealth Creation Tool 2.2Real Estate Investment Framework CHAPTER 3: ANALYSIS OF THE SOUTH AFRICAN COMMERCIAL OFFICE SECTOR 3.1Position of South African Listed Property Sector 3.1.12012 Performance 3.1.22013 Performance 3.1.3First Quarter of 2014 Performance 3.2Status of South African Commercial Property Market 3.2.12012 Performance 3.2.22013 Performance 3.3Condition of South African Office Sector 3.3.1Nominal Gross Market Rental Growth across All Grades of Regional Offices 3.3.2Nominal Growth of Regional A-Grade Office Gross Market Rentals 3.3.3Regional Pioneer-Grade Office Gross Market Rentals 3.3.4Regional A+-Grade Office Gross Market Rentals 3.3.5Regional A+-Grade Covered Reserved Parking Gross Market Rentals 3.3.6Rental Escalation Rates on New Leases across All Grades of Regional Offices 3.3.7Typical Gross Outgoings for All Grades of Regional Prime Offices 3.3.8Escalation Rates on Outgoings across All Grades of Regional Offices 3.3.9Capitalisation Rates for A-Grade Multi-Tenanted Regional Offices 3.3.10Typical Rent Free Periods across All Grades of Regional Offices 3.3.11Regional Vacancies CHAPTER 4: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 4.1Summary and conclusions 4.2Recommendations references

CHAPTER 1: THE RESEARCH BACKGROUND

1.1Introduction

South Africa’s four traditional asset classes are equities, property, bonds and cash. As diversification essential to investment strategy, most investors opt to include either listed or unlisted property within their portfolios. According to Jones Lang LaSalle (2014: 5), around R15.8 billion of the R29 billion worth of sale transactions in 2013, an approximate 54.00%, occurred within the South African office sector. The value of transactions in the office sector improved from R7.6 billion in 2012 to R15.8 billion in 2013, an increase of around 109.00%. Approximately 60.00% of all sale transactions in 2013 occurred in the decentralised office nodes of Gauteng alone. The significant increase in the value of transactions was attributed to the aggressive acquisition of quality office properties by listed property funds. The most prominent transaction in 2013 was Growthpoint’s purchase of The Towers in Alice Lane, Sandton Central Business District (CBD) from Tiber on a 7.40% yield for R563.6 million. Investors’ review of the abovementioned data may leave many with the perception that the office sector might currently be the best performing property sector in South Africa. In order to determine the accuracy of such a perception, most investors will conduct a thorough analysis of South Africa’s listed property sector, professionally managed investment property portfolios and office sector on a nodal basis.

1.2The research problem statement

Insufficient research by investors negatively impacts their broader understanding of the South African office sector’s current performance.

1.3The research questions

  • How has the South African listed property sector been performing in comparison to other asset classes over the short term?
  • How has the South African office sector been performing in relation to the national retail – and industrial sectors since 2012?

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