South African Investment Review and Outlook 2020/2021
Despite the rise in investment uncertainty South Africa’s industrial sector remains resilient according to our latest report.
The South Africa Investment report provides insights on key investment trends observed following the impact of COVID-19.
According to the report, there has been a shift in investment strategy towards more resilient sub-sectors, in line with global trends. These include bespoke logistics and warehousing assets, alternative living assets such as student accommodation and senior housing, as well as convenience retail and flexible office space. Non-traditional assets, including data centres, healthcare facilities, storage and telecommunication sites have also emerged as popular alternatives. Therefore, despite the rise in investment uncertainty during a challenging year, transactional volumes have remained resilient in the sector.
“A strategic shift towards defensive income-generating assets has resulted in a growing interest in the alternative and living real estate segments. This was confirmed by substantial growth in transactional value during 2020, increasing by 48% on an annual basis to R1.7 billion. Gauteng remains the primary market (68%) for transactions recorded, with major deals including Academia Student Village (R370 million) and Oxford Heights (R272 million),” commented Michael Scott, research analyst, JLL SSA.
Office transaction activity was down by almost 60% on an annual basis by the end of 2020, totalling circa R3.2 billion. Approximately 88% of total deal flow was based in Gauteng, boosted by the sale of 20-22 Girton Road and ABSA Towers, collectively selling for R1.2 billion. Disclosed office yields achieved in 2020 ranged from 8.1% to 10.6%, predominantly a function of asset quality, lease renewal arrangements, and tenant strength, amongst other factors. Although current investment sentiment remains negative within the traditional office space, prime, institutional quality assets, with long term leases in place, which do transact during 2021 are expected to achieve disposal yields on first year’s net operating income (NOI) in the range of 8.25%-9.00%.
Traditional retail assets, notably smaller convenience, township-based malls and rural retail continue to show resilient performance amidst a subdued economy. This has been supported by strong demand for essential goods and services, while omnichannel and e-commerce penetration levels remain limited in rural and township areas. Most transactional activity was recorded in Gauteng (37%) and the Western Cape (28.4%). Key deals driving deal flow in these markets include Mall of the South (Gauteng), Glengarry Village Shopping Centre and Ottery Value Centre (Western Cape).
For more information, please download the full report.