The SA commercial and industrial property sectors have enjoyed stellar returns and rocketing values over the past few years.
This has applied both to the JSE's real estate sector, whose property companies and funds have large exposures to commercial and industrial property, and the fixed property market.
Though a rising interest rate environment and the US markets fallout have dampened the market to an extent, solid distribution growth from the listed property sector and sound property fundamentals in general continue to help commercial and industrial property steam ahead.
WHAT IT MEANS
 Interest rates have eroded 15% of value
But rentals will keep the sector performing
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Commercial and industrial property brokers Pace Property Group MD David Green says the commercial and industrial property boom began to gain momentum in 2005, building up to its highs in November last year.
In most cases property values for industrial, commercial and retail real estate doubled largely as a result of yield compression and rental growth.
The listed property sector delivered an average return of 26% last year, with the top stocks delivering up to 55%.
"These returns are well above any global property returns and certainly outperformed the global real estate sector," says Green.
Vuyani Bekwa, a fund manager at Investec Property, says that from July 17 2006 until January 31 this year the SA listed property index's total return was 56,25%.
Highlighting how well listed stocks have performed over the medium to long term, Bekwa says that over the past 10 years listed property delivered a 28,18% total return each year up until January 31 this year.
He says listed property companies have fixed their interest rate exposure to a "large extent" and gearing levels are relatively low.
"That is why listed property has been resilient to the higher interest rate environment," says Bekwa.
The Investment Property Databank (IPD) confirms that fixed SA real estate delivered a handsome total return of 26% for 2006.
"SA was, at that point, the top performing real estate market, exceeded only in performance by the Irish real estate market," says Green.
But interest rates, which began rising in the middle of 2006, have resulted in a substantial erosion of the premium to net asset value that listed property stocks were trading at. The listed property sector has lost about 15% of its value over the past couple of months.
But assuming only a maximum of a half a percentage point increase in interest rates this year, the SA real estate sector should continue to perform well in relation to the global real estate market, says Green.
This is due largely to rapidly escalating commercial and industrial rentals because of low vacancy factors and the improvement in value of zoned land that already has approved bulk services.
Listed property loan stock company Growthpoint Properties CEO Norbert Sasse says listed property prices have come down by between 10% and 20% since the beginning of the year. But this will not apply to income produced by the listed property companies and funds.
"I think the income is going to remain solid because of the low vacancy rates and the continued mismatch between demand and supply. We are seeing stronger demand than supply again reinforcing the prospects for good rental growth with positive reversions on (rental agreement) renewals."
Investec Property CE Sam Hackner is optimistic about commercial and industrial property's prospects, saying there is still demand for commercial and industrial space.
"There is no doubt in my mind that how you deal with property is how well you have bought. If you're a long-term player like listed property funds or us, you will constantly modify yourself to adapt to the changing environment," he says.
"I've been in property for 28 years and if I were given the choice of previous difficult market positions or this current one, I would choose the current one by miles."
Though there have been concerns in the marketplace about the higher interest rate environment, Hackner says that in 1998 interest rates were 11% higher than they are now and there was no money being invested in property.
Also at that time property was not even considered an asset class by investors and the only big buyers were institutions.
"We're now in a good property market, if your portfolio is balanced," says Hackner. He also warns against "speculating on interest rates".
"When you're in the property market, your asset is property. You don't speculate on interest rates."
