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Cape Town, Western Cape, South Africa, 2011/03/05 - Shorten leases, negotiate rentals, retain tenants says De La Porte.
Commercial & Industrial Property News. The enormous number of imponderables that are about to impact property investors means that to keep the asset performing at optimum levels, negotiation and compromise are the rule right now.
‘With the market improving it makes no sense for commercial and industrial rental property owners to be locked into long leases that will just ensure that their investments underperform into the future,’ says Cape brokerage principal Jonty de la Porte. ‘This is particularly true now with the spectre of increasing inflation, building expenses and costs such as electricity, rates and body corporate levies. These are not always easy to pass on to a tenant.’
The good news, he says, is that this year has started well in the sectors of the property industry serviced by the De La Porte Property Group (delaporte.co.za), but with more leases than sales. ‘This development heralds an uptick in the economy in contrast with last year, when our bigger business consisted largely of sales to investors’.
A possible downside is that occupancies have been under pressure, squeezing the need to retain tenants in a sometimes unpredictable environment. ‘That’s why, in negotiating optimal rentals both for tenants and landlords, it remains very important to have what amounts to a prescient insight into the markets where we operate.
‘What there is no doubt about is that landlords will have to juggle what is going to be a rapid increase in expenses – electricity, rates, water, refuse and red tape costs, while retaining tenants, and still remaining profitable way into 2011.’
De la Porte says that on the industrial property side, there is less rental stock on the market than is generally believed. ‘Yes, there are some older buildings in older areas but not a lot of good modern stock on the market and what is available will be taken up relatively quickly once the economy picks up. Even in the office market, there seems to be some positive activity. But that still doesn’t mean it makes sense to hold out for an above-market rental when the potential tenant still has a pick of more reasonable accommodation nearby’.
He believes that his group’s parallel broking and property management divisions (they have more than R700 million under management) create synergies that include a close working relationship between brokers and managers. ‘That means they are always up to date with rentals and the supply and demand situation of certain types of property in different areas. Information we can pass on to our clients.’
Advice he has for rental property owners is that maintenance and management are key in attracting and retaining tenants. ‘They don’t always move because of a rent increase but a rent increase combined with a badly managed and maintained building will push them out’.
‘And get on top of the Consumer Affairs Act which could have serious repercussion for lease agreements and a whole lot more. Red tape is increasing and landlords will find it easier over time to outsource to property managers and experts,’ he says.