Alliance Group, once again created property history on Tuesday when they took to auction an enormous collection of commercial and development properties at their Johannesburg Commercial auction. A massive 640 individual properties were offered on the auction block, and according to the auctioneers, this was the first time in the history of South Africa that so many properties have gone under the gavel at one time. The multiple sale attracted over 350 bidders and, according to Levitt, “shows that commercial property markets are without a doubt thawing”.
The sale witnessed one of the auction group’s busiest sales rooms this year with extremely competitive bidding. At the time of writing over R320million was raised, reflecting a value success rate of over 93%. This made it the biggest October auction since 2007. According to Alliance Group, the volume of lots offered and sold has provided the auction leader with a unique and unrivalled knowledge of buyers currently in the market.
Not to be outdone, Cape Town has also seen a number of fantastic sales recently. Alliance Group sold 14 Long Street for a staggering R71 million earlier this month which shows that good properties do still achieve good prices. Other recent sales by Alliance Group in the CBD include a city block on Strand Street which housed the famous 81-year old Phoenix Hotel which was sold for R35.7 million, ICG House on Strand Street which was knocked down for R36.8 million, President House in Barrack Street which went under the hammer for R13.44 million and an entire city block which was sold last year for a massive R74 million. Comments Rael Levitt of Alliance Group, ‘’Our mission is to create wealth for our clients and the results we have achieved of late are testament to this. 2010 is going to be an exciting year for all!’’
A recent report released by Alliance Group shows that in the third quarter of 2009 there were some signs of increased sales activity in commercial property industry. Even so, the market is still far quieter than a year ago. According to the report, the bank’s stricter lending guidelines have constrained the market as have increased concerns about tenants. According to October’s Alliance Commercial Research Report which analyses the burgeoning auction industry, investors who can raise financing or have access to cash are now looking for value in anticipation of a rebound in commercial property values over the next 24 months.
The report notes that there has been a bottoming out of sales confirmation rates over the last eight months, with a marginal decrease in the reserve sale price variance. “Both these indicators suggest an improvement compared to records from early 2009,” says Levitt. Overall, while there appears to be increased activity in the market, commercial property sales at auctions performed well below August 2008 figures, just before the international credit crises began.
There is an emerging trend of increased sales rates for higher value, prime stock, according to the report. “We are finding that dependable cash flow and strong covenants are attracting the highest prices and strong yields. While 44% of all property sold was tenanted, the average selling price was relatively higher at R7,5-million with a number of sales noted above R30-million,” says Adie. The purchaser profile for such property has generally been high net worth individuals who have not been restricted by tighter credit policies.
Levitt says the last research report identifies the emergence of increased market activity, a process of ‘thawing’ and new, higher, required return levels. A trend, he says, that appears to continue. The average sales reserve price variance has decreased by 10% month-on-month. “This is significantly better than those recorded during the turning point of the market in the latter months of 2008, when extreme volatility and frozen credit markets resulted in far higher spreads and more unrealistic seller expectations. Quite simply,” explains Levitt, “Last year many commercial sellers were looking for unrealistic prices and couldn’t get them. The recession has brought a dose of reality to many sellers who are now accepting lower prices, thus increasing sales activity.”
Although the data sample of income-generating properties reduced moderately over recent months, average initial yields remained steady, holding back from their softening trend over the first two quarters of 2009. The lowest average yield was again experienced in the Western Cape at an average of 10%. Gauteng followed at 12% with KwaZulu-Natal recording the top average yield of 14%.
“What auction prices are showing us is that commercial property is still a sought-after investment and with lower interest rates, valuable properties are being snapped up as astute cash-rich investors take advantage of a less competitive market.”
Armed with this knowledge and a bumper selection of quality stock on offer, Alliance Group are confident that its Cape Town commercial auction which takes place at the One&Only Hotel on 25 November, will end off the year with a bang and in good stead.