For the month of April, performance was up by 2.3% closing out the first quarter of the year. Cumulatively, that brought returns of 2% for the quarter as globally, stocks saw their best returns in the last nine years. The quarter had started on a more positive return (7.3% for the month of January) as a recovery from the difficult last months of 2018 saw fund managers picking up equities at cheap valuations. The main drivers of the returns were the possible resolution of trade wars between the U.S. and China, the U.S federal Reserve halting back the increase of interest rates for the year with the South African Reserve bank and other global central banks following in suit. In addition, China’s economic recovery continued due to stimulus placed which yielded results where manufacturing managers increased their purchases along with consumer confidence increasing in the world’s second largest economy. Detractors of performance for the quarter were factors such as Brexit, where Theresa May postponed the conclusion of Brexit due to the impasse of her and the British parliament whom subsequently rejected her deals. Local factors were the most evident as rolling Eskom blackouts hampered confidence in the economy and the consumer had to bear petrol price increases and the weakening of the Rand, which was subject to local and international factors such as Turkey. Also, we saw the IMF and Reserve bank downgrade economic growth for South Africa.
In terms of property, the offshore Eurozone portfolio continued to perform well as industrial property was the recipient of structural changes in the patterns of shopping by consumer. This was followed by offices and then retail. Both industrial and office portfolios saw rental growth whilst retail began to see negative growth in rentals. For Britain, it bore the most pain in terms of retail as the transformation of retail from main street to digital occurred. Germany, mainly Frankfurt, was the biggest recipient of companies moving away from London due to the Brexit saga as companies prepared for the worst-case scenario.
Back in South Africa, like offshore, the best performing sector was industrial property, followed by retail and finally office.For the quarter, industrial property saw rental growth of 4.6% with a vacancy rate of 3.6% (the lowest) as demand for large industrial properties continued to outstrip supply. The industrial space saw an improvement in the growing manufacturing, a sign of the growth-shoots expected as the new president returned manager confidence.
The overall retail vacancy sat at 4.2% coming down from 5.9% in 2018 as the sector saw an improvement in the footfall of certain centres. The Super regional malls such as Mall of Africa, in Waterfall City, and community centres where the best performing formats of property due to convenience and pricing for clients (depicted in the table below). Also, we saw an improvement in consumer confidence.
The worst performing sector was the office sector with an average 11.2% vacancy rate. Due to excess stock and the lack of backfill from emerging companies, the high vacancy remained undeterred with City of Cape Town having the lowest rate at 7.7% and eThekwini having the highest at 13.5%. Special mention goes to Sandton CBD, commonly known as “the richest square mile in Africa” which sits on vacancy rates of 17.6% due to development outstripping demand and tenant consolidations resulting in rental growth remaining negative.
Looking forward, the month of May will be a busy many property companies releasing results and South Africa going to voting booths.