Strategic approach crucial for 2024 market

The South African commercial property market presents a blend of challenges and opportunities with economic uncertainties, shifts in the rental market, financing constraints, and regulatory complexities being some of the more prominent issues this year, says Afroteq advisory head Sanett Uys.

Navigating this market requires a strategic approach, thorough research and expert guidance, she says, noting that, by addressing the challenges and leveraging opportunities, investors can achieve successful outcomes.

However, the volatile economic climate in South Africa can significantly impact on property values and rental income. To mitigate this, Uys recommends conducting in-depth market research to understand the economic indicators and their potential impact on property investments.

“Changes in the rental market can affect occupancy rates and income, so it’s necessary to have a diversified portfolio,” as this can help spread risk and stabilise returns, she adds.

Further, access to finance is becoming increasingly challenging, owing to stricter lending criteria. Investors are advised to stress-test their financial scenarios to ensure they can meet their obligations, even in adverse conditions.

Uys further extols the importance of staying agile and adaptable, along with building strong networks for expert advice, to navigate the complex regulatory landscape.

However, investors often encounter several pitfalls during the due diligence process.

Therefore, comprehensive research and professional guidance are critical, she advises.

Thorough Analysis

Uys emphasises the need for a thorough financial analysis and making realistic assumptions to avoid overestimating property value.

Ignoring hidden costs, such as maintenance expenses, property taxes, insurance and unexpected repairs, can “add up”, but creating a detailed budget and contingency plan can mitigate these risks.

Further,

failure to review legal documents carefully can expose investors to legal risks. All legal aspects must, therefore, be thoroughly examined to ensure a successful investment.

Uys underscores the necessity of conducting thorough title searches to avoid undisclosed liens or boundary disputes. Understanding local zoning ordinances is also important.

Addressing environmental considerations and potential contamination risks is key, as is reviewing existing lease agreements and tenant rights to avoid unexpected obligations.

Additionally, thorough property inspection is needed to identify potential issues. Uys suggests including qualified inspectors to assess structural integrity, electrical systems; plumbing; heating, ventilation and air- conditioning; and roofing.

Specialised inspectors for termite assessments, mould evaluations or environmental assessments are also recommended. So is attending inspections and reviewing detailed reports.

Meanwhile, market analysis is also crucial in evaluating a property’s potential.

Uys advises focusing on supply and demand dynamics to predict property values and rental rates, and historical price trends and average days on the market to assess market activity.

Economic indicators, such as job growth and interest rate changes, are also important.

When analysing lease agreements, Uys says investors should look for longer lease terms for stability and consistent income, rent escalation clauses to keep pace with inflation and adequate security deposits to mitigate risks.

She also notes the importance of clear maintenance responsibilities to prevent disputes, provisions for late payment penalties and favourable renewal terms.