THE CHIEF ECONOMIST

Prof. François Viruly FRICS

Economic perspective on the forces shaping South Africa's commercial property cycle.

The market does not move at one speed.

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WHAT THE CLOCK SHOWS

The datazone Property Clock monitors the South African commercial property cycle and illustrates where the retail, office and industrial sectors sit within it. These sectors don't move at the same pace, their positions reflect the demand and supply conditions within each market.

FROM THE ECONOMIST'S DESK

Location Matters, But So Does Timing

While considerable attention is placed on location in property decision-making, equal attention should be given to timing. The property market is known to be cyclical, and the point in the cycle at which an investment or development decision is made can have an important influence on its performance.

SHORT CYCLES

Some property cycles are relatively short, such as the investment cycle, which is influenced by changes in interest rates, bond yields, the availability of finance and investor sentiment.

LONG CYCLES

The property market also experiences longer-term cycles. These are influenced by structural changes in the economy, including changes in demographics, infrastructure, technology, employment and the way in which property is used. In South Africa, the period between major property cycles can be as long as 20 years.

The datazone Property Clock monitors the South African commercial property cycle and illustrates the position of the retail, office and industrial property sectors. These sectors do not necessarily move through the cycle at the same pace. Their positions are influenced by the particular demand and supply conditions within each market.

USER MARKET

The user market reflects the demand for property space and is influenced by rentals, vacancies and levels of take-up.

FINANCIAL MARKET

The financial market affects property values, yields and the availability and cost of finance.

DEVELOPMENT MARKET

The development market reflects the supply response, including development activity and the delivery of new space.

The model also recognises that, while the property market is affected by macroeconomic trends, considerable lags exist as these trends flow through decision-making in the property sector.

FAST TO MOVE

Changes in interest rates and financial-market conditions can affect investment sentiment relatively quickly.

SLOW TO MOVE

However, it can take considerably longer for changes in economic growth, employment and consumer expenditure to affect rentals, vacancies, development decisions and the supply of new property space.

The datazone Property Clock therefore indicates where the different commercial property sectors are positioned within the cycle. It also provides a framework for considering the direction in which these sectors may be moving. In property decision-making, the question is therefore not only where to invest or develop, but also when.

The datazone property clock is published quarterly.

PROF. FRANÇOIS VIRULY FRICS · DATAZONE CHIEF ECONOMIST