Erwin G. Rode Vol. 26 no. 2 John S. Lottering Editor-in-chief Published by Editor Survey administrator Advertising Cover illustration

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3 i Vol. 26 no. 2 Erwin G. Rode (editor-in-chief) John S. Lottering (editor) Editor-in-chief Erwin G. Rode Editor John S. Lottering Survey administrator Nicole Maytham Published by Rode & Associates (Pty) Ltd. Reg. No: 2009/005600/07 PO Box 1566, Bellville 7535 Tel Fax john@rode.co.za Website: Advertising Lynette Smit Subscriptions Juwayra Januarie Annual subscription: 4 issues: R5.300,00 (excl. VAT) Cover illustration Konrad Rode Printing Shumani Mills Communications willie@shumanimills.com Rode & Associates (Pty) Ltd., June All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. While all reasonable precaution is taken to ensure the accuracy of information, Rode & Associates (Pty) Ltd. shall not be liable to any person for inaccurate information or opinions contained in this publication. Portions of this report may be reproduced for legitimate academic or review purposes provided due attribution is cited.

4 Property consultancy Real estate valuations Real estate economics Town and regional planning As one of the largest independent property valuation firms in South Africa, Rode & Associates offers the property industry: Real estate economics and research based on statistical models and regular countrywide surveys, which feed three research publications and over 5000 property time series covering more than two decades Property valuation including residential, commercial, industrial, agricultural and specialised properties such as hotels, hospitals, dormitories, self-storage facilities, airports, and the like. Property consultancy which includes forecasts, overviews, and expert analyses for corporates, government departments and private clients Town and regional planning which covers land-use control, spatial planning and integrated development plans, and which holistically incorporates property demand and supply, social, economic, political and environmental factors. Based in Cape Town, Rode serves clients from all over South Africa and Namibia (Windhoek only). GROUNDBREAKING RESEARCH Over the years, Rode's research has led to groundbreaking property models and methodologies. This includes the regular, rigorous surveying of market rental levels and capitalization rates through the expert-panel method of polling to provide more uniform and realistic market valuations. Other breakthroughs include: A unique econometric model to forecast the South African real estate market The statistical determination of standard capitalization rates Property demand forecasts The estimation of market rentals in shopping centres and for industrial premises of various sizes Special methodologies to value income-producing properties The development of regression models to estimate the capitalization rates of office properties, industrial properties and shopping centres The application of multiple regression techniques to value houses Rode's Valuation Method also known as the opportunity cash flow (OCF) method to value income-producing properties A further refinement to the valuation of land with residential township potential using the direct-comparison method A further refinement to the valuation of bare dominiums.

5 RodePlan specialises in town and regional planning to foster pathways to facilitate sustainable development. This includes: Land-use control: rezoning, subdivision, departure, consent use, removal of title restrictions, zoning schemes Spatial planning: spatial development frameworks (SDFs) and plans (SDPs) Indicator development: (land markets, land identification, -acquisition and -release) Research: (spatial planning and implementation, housing delivery programmes and projects) Governmental integrated development planning (IDP): (process and products), supported by a geographic information system (GIS). RodePlan focuses on town and development planning processes and products at macro, meso and micro level. RodePlan considers an in-depth understanding of the social, economic, political and environmental elements that underpin present-day society as fundamental to an SDF and to Housing Sector Plans in order for planning and implementation to complement economic growth and development. Rode also advises private clients on the development potential of specific properties and/or land disposal strategies. This is done in collaboration with our expertise as property economists. RodePlan's clients include property owners, developers, engineering companies and government institutions e.g. Engen Petroleum Limited, Urban LandMark, Gauteng Provincial Government Department of Economic and Development Planning, Cape Winelands District Municipality, Bergrivier Municipality, Umoya Energy (Proprietary) Limited, G7 Renewable Energies (Pty) Ltd, Plan 8 (Pty) Ltd, South Africa Mainstream Renewable Power Developments (Pty) Ltd, Solairedirect (SA), Ignite Advisory Services (Pty) Ltd and Aurecon. Recent appointments include: To obtain land-use rights for more than 10 renewable energy facilities in the Western-, Eastern- and Northern Cape and for all provincially operated borrow pits in the Western Cape. As one of South Africa's largest valuation firms, Rode annually values property portfolios which include shopping centres, agricultural property, residential, commercial and industrial property. Rode also undertakes municipal property valuations, as well as specialized valuations such as hotels, hospitals, bare dominiums, airports, etc. Rode's property valuation services are underpinned by the rigorous surveying of, inter alia, market rental levels and capitalization rates. Rode's valuation services also rely extensively on techniques such as regression models, as well as the opportunity cash flow (OCF) method. This ensures uniform and realistic market valuations, and is Rode's competitive edge. SHOPPING CENTRES In the retail field, Rode is considered South Africa's premier shopping-centre valuer due to the firm's technique of calculating market rentals and standard capitalization rates. The firm regresses actual rental rates of recently signed leases against their floor area size to determine the relationship between the market-rental rate and floor area. The latter is a useful tool which landlords can employ to their advantage when negotiating renewals.

6 FARM VALUATIONS Rode's agricultural valuation department specialises in the valuation of farms and smallholdings, and understands the value-drivers within this sector. SPECIALIST PROPERTIES Rode Valuations has done pioneering research on a number of specialist-property typologies, and we regard ourselves as leading valuers with respect to hospitals, self-storage facilities, hotels, retirement villages, bare dominiums (leased fee estates in American parlance) and airports. Rode Consult provides forecasts, overviews and expert opinions for corporates, government departments and private clients on a wide range of property issues. Recent outputs include: Writing a macro overview of the South African housing market for the national Department of Housing Producing demand forecasts for specific office nodes and flats markets Producing forecasts of rental levels using econometric modelling Analysing property portfolios Producing long-term forecasts of property values in South Africa Development of a comprehensive policy framework for the identification and release of land for human settlements Analysing the property market in Bloemfontein and other Free State towns Acting as expert witness in arbitration and litigation Consulting for spatial and development planners and economists. RODE'S REPORT ON THE SOUTH AFRICAN PROPERTY MARKET Rode s Report analyses and reports on most sectors of the property market. It covers, among others, trends and levels of rentals and standard capitalization rates by property type, grade, node/ township, the listed real estate market, and building construction costs and building activity. Quarterly updated; print or electronic version. RODE'S SOUTH AFRICAN PROPERTY TRENDS Trends is aimed at general managers with strategic decisionmaking power and property investment analysts who are involved in asset allocation and viability studies. It offers a statisticallybased analysis and forecast by property type of all key indicators affecting the property market, and it covers all the major metropolitan areas to provide a complete framework for property investment planning. The forecasts include those for standard capitalization rates, prime industrial and office rentals, office vacancies, building cost and the property cycle. Biannual CD publication.

7 RODE'S RETAIL REPORT ON SOUTH AFRICA Rode's Retail Report contains analyses and reports on retail property, including shop rentals, operating expenses and escalation rates. It also contains data on new shopping centres, mooted developments and extensions to existing centres. Quarterly CD publication. RODE'S TIME SERIES DATABASE Rode updates and rents out approximately property time series, which offer property researchers and analysts a unique opportunity to analyse sub-markets from office, industrial and residential rentals to capitalization rates and house prices covering more than two decades. A Pro and a Lite database is available. The main difference between the Pro and the Lite database is that the former contains the disaggregated or nodal data. Electronic publication on CD, updated quarterly. RODE'S SALES This is an online database that analyses and reports on actual commercial and industrial property sales, as well as vacant land sales. It is specifically designed with a view to assist anyone who has to determine the capitalization rates of income-producing non-residential properties, or the market value of vacant land. It is meant to be complementary to Rode s Report, of which the quarterly surveys are opinion-based. RODE'S GROWTH POINTS Target market: CEOs, general management, fund investment managers, analysts Identifies areas of growth and stagnation in order to direct investment strategy Nine South African cities are included: Johannesburg, Pretoria, Cape Town, Durban, Port Elizabeth, East London, Bloemfontein, Nelspruit, Polokwane Updated biennially Price on enquiry Tel: (+27) (0) Fax: (+27) (0) info@rode.co.za Postal address: PO Box 1566, Bellville 7535, Cape Town, South Africa Physical address: 11 De Villiers Street, Sunray (near c.o. Maree St), Bellville, Cape Town GPS: 33 53'58,5"S; 18 38'14,5"E

8 vi Rode staff Rode staff Erwin Rode BA, MBA (Stell): CEO John S Lottering BCom(Finance)(UWC), BComHons(Econ)(UWC),MCom(Econ) (UWC) Berchtwald Rode BA (Stell), MTRP (UOFS) Juliana Dommisse BEconHons (Stell) Karen E Scott BComHons (Stell), BComHons (UCT) Monique Vernooy BTech(QS) (Cape Tech), NDREES (UNISA) Tobi Retief BA (Stell), NDREES (UNISA) Madeniah Jappie BScHons (Property Studies) (UCT) Stephan van der Walt MA (Stell) Marlene Tighy BSc (Wits) Hons (OR) (RAU), MBL (UNISA), Pr Sci Nat Janelle Van Harte Paralegal (School of Paralegal Studies) Biancé Johnson Journalism (City Varsity) Lynette Smit Elizma Hawksley Juwayra Januarie Abigail Van Wyk Nicole Maytham Bianca Stears Samantha Harkers

9 vii Contents Contents General article A tool to calculate covered office parking rentals anywhere 1 State of the property market State of the property market in quarter 1 of Capitalization rates Steady cap rates despite gathering clouds 8 How to estimate capitalization rates anywhere 19 Listed property The price party continues, but for how long? 22 Office rentals, operating expenses, and office demand & vacancies Office rentals feeling the pinch National office vacancy rate edging closer to historic high Industrial rentals and vacancies and industrial stand values Support pillars remain fragile 61 Stand values in Durban and Cape Town showing decent growth 86 Residential market Flat rentals are recovering 109 Growth in house prices slowly losing its momentum 124 Building activity & building costs Continued tough times ahead for building industry 132

10 viii Tables Tables Table 1: Descriptive statistics of dataset 1 Table 1.1: The property market at a glance 5 Table 2.1: Survey of capitalization rates: office buildings 13 Table 2.2: Change in capitalization rates: office buildings 14 Table 2.3: Survey of capitalization rates: industrial buildings 15 Table 2.4: Change in capitalization rates: industrial buildings 15 Table 2.5: Survey of capitalization rates (%): shopping centres 16 Table 2.6: Change in capitalization rates (%): shopping centres 17 Table 2.7: Survey of capitalization rates (%): street-front shops 18 Table 2:8: Change in capitalization rates (%): street-front shops 18 Table 4.1: Asset class performance: Total returns April Table 4.2: Growth in distributions for half- and full-year period ended December Table 4.3: Total return (%) on listed property funds to February Table 5.1: Pioneer office rentals 31 Table 5.2.: Market rental rates for office buildings 32 Table 5.3: Standard deviation of market rental rates for office buildings 35 Table 5.4: Typical rent-free period in months 37 Table 5.5: Market parking rentals 38 Table 5.6: Office rental escalation rates on new leases (%) 41 Table 5.7: Escalation rates on operating costs 42 Table 6.1: Sapoa office vacancy factors (%) 46 Table 6.2: Sapoa office stock (m 2 ) 53 Table 7.1: Pioneer rental rates for new, state-of-the-art industrial developments during quarter 2015:1 63 Table 7.2: Mean prime industrial market rentals 64 Table 7.3: Standard deviation from mean prime industrial market rentals 73 Table 7.4: Predominant market escalation rates (%) for industrial leases 85 Table 7.5: Indicative operating expenses for industrial buildings 85 Table 8.1: Mean market values for industrial stands 88 Table 8.2: Standard deviation for industrial stands 98 Table 9.1: Gross-income yields (%): Flats 111

11 ix Tables Table 9.2: Flat rentals: standard-quality block of flats 113 Table 9.3: Flat rentals: upmarket-quality block of flats 119 Table 10.1: Gross-income yields (%) on houses by price class 127 Table 10.2: Gross-income yields (%) of townhouses by price class 130 Table 11.1: Growth in square metreage of building space completed 134

12 x Annexures Annexures Annexure 1 Glossary of property terms and abbreviations I Annexure 2 Technical background to the Rode surveys IX Annexure 3 How to interpolate industrial rental rates and land values XII Annexure 4 Approximate building cost rates as at July 2014 XIII Annexure 5 Monthly forecast of Haylett by MFA XXIII Annexure 6 Absa Home Building-cost Index XXIV Annexure 7 BER Building Cost Index XXV Annexure 8 Prime overdraft rate at month-end (%) XXVI

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14 xii Panellist codes Panellist codes Code Company Telephone number ABA Abacus Divisions ACU Acumen Properties AH Alex Thornhill Properties AI Aida Pretoria AN Annenberg Real Estate AP API Property Group Cape Town AP API Property Group Gauteng AR Ash Brook Investments ASA ASAP Property Agents AV 5th Avenue Properties AW Watprop AY Alpine Estates BA Brammer Ross & Shapcott BC Barclay Miller & Associates (Pty) Ltd BG Batting Properties BHP Blue Horison Properties BM Jones Lang LaSalle BQ Brightridge Properties BR Broll Property Group - Illovo BR Broll Property Group BR Broll Property Group (Pty) Ltd BR Broll Retail BS Penthouse Real Estate BW Buschow Properties BZ Bales and Associates CB Centurion Letting & Sales CBP Camalb CC CCI Properties CC CE Cenprop Real Estate CF Cathy Cordier Eiendomme CI City Property Administration CI City Property Administration

15 xiii Panellist codes CI City Property Administration (JHB) CI City Property Administration CL Cleomic Property Consultants CQ Connaught Properties (Pty) Ltd CIR Circle Properties CR Colliers International CS Chase & Sons DDN Diamond Properties North DD Diamond Properties DE Dedekind Real Estate DG DG Ladegaard Real Estate DK Home Estates DL Delta Real Estate DN David Newham Property Management DQ Deskay Real Estate DV Dan Viljoen Estates DW Divaris Property Brokers EB ERA Ermelo EB Era Sun Kuruman ED Edric Trust EF Eagle Properties EH Ermelo Homenet EI Eris Property Group EK Ellenberger & Kahts EM Property Management & Rental Specialist CC EQV Equity Valuers ER Associated Brokers ES Eli Ströh Edms Bpk EV Engel & Völkers Commercial Properties FLP Freeline Properties FN Fine & Country Bethlehem FO Fosprops Properties/Homenet GB Galetti Knight Frank Cape Town GB Galetti Knight Frank Gauteng GE Gustrouw Estates (Pty) Ltd GIN Ginyan Commercial GH Gradion Property Investmens

16 xiv Panellist codes GO Pam Golding GO Pam Golding Commercial GI Growthpoint GI Growthpoint Properties Limited GR Grove Properties GT Black Pepper Properties GV G. Spargo and Associates GW Goldswain Investments GY Guy de la Porte Property Solutions HE Homelet Grahamstown HH Hendrik Tryhou Property Consultants HK Huurkor HN Harcourts Excellence HN Harcourts Jana-Marie Real Estate HP Horizon Capital (PTY)Ltd HS Harcourts Summerton Edelson IK Ikon Property Group IP Investpro IPM IPMS Pty (Ltd) ibhayi Property Management Services JH JHI Properties JL Just Letting Randburg/Northcliff JL Just Letting Potchefstroom JL Just Letting City Bowl JL Just Letting Tygerberg JL Just Letting Uitenhage JL Just Letting JP John Price Estates JR J Margolius & Associates (Pty) Ltd KB Key Properties KE Keydom Real Estate KI Kitchings Agencies LA Landlords We do Rentals LH Leader Homes LZ Life Residential MAS Massyn Acquisitions ME Mendace Properties MEA Meadow Star investments 85 (Pty) Ltd

17 xv Panellist codes MH Merchant Trust Properties MI Platinum Global ML Mindry Properties CC MO Moolman Group of Companies MO Moolman Group Property Management MP Monarch Rentals (Pty) Ltd MPR Millar s Properties MR Marder Properties MUL Multi Properties MW Mc William Murray Realty NB North Point Commercial NE Newbridge Property Services NH Netwater Properties NR National Real Estate NRG SA National Realtors Group Commercial OB Only Rentals: City Bowl OB Only Rentals Kempton Park OD Oudtshoorn Eiendomme OF Omnicron Commercial Financial Services PA Pace Property Group PC Propco (1985) (Pty) Ltd PF Permanent Trust Property Group PF Permanent Trust Property Group PH President Estate & General Agents (Pty) Ltd PJ Profile Property Solutions PL Pears Property Consultants (Pty) Ltd PM PDL Property Management (Pty) Ltd PN Propergation Estates PPI Portfolio Property Investments PQ Pro-Net Estates PS Property Scene Real Estate PU Pulse Property Managers QP Share-List Property QU Quadrant Properties QV Boyd Valuations RA Real Estate & Property Services RD Redefine Income Fund

18 xvi Panellist codes REW Real Work RF Rent-A-Flat RM Remax Kuruman RO Reef Property Consultants RON Ronprop RQ Platinum Properties RR Realnet Nelspruit RR Realnet Southern Suburbs RS Rawson Properties Milnerton RY Rita Stipec Properties RZ Oriprops SC Stockton Property Consultants SF Seeff Durbanville & Brackenfell SF Seeff Commercial Randburg SJ Smart Properties SN Selection Estates SO Stockland Property Group SQ Steer & Company SWI Swindon Property Services SX Status-Mark TC Parker Properties TD Trussard TG Theo Goosen Estate Agents TH Trevor Hosiosky Investment Properties TR Trafalgar Property Services TR Trafalgar Property Management TR Trafalgar Property Services TR Trafalgar Property & Financial Services TR Trafalgar Property Services Southern Suburbs WD Webprop WFI Warehouse Finders WK Wakefields Property Management (Pty) Ltd ZB Sotheby s International Realty PE ZB Lew Geffen Sotheby s Commercial Services ZC SBI Property ZE Zenith Properties ZZ Anonymous

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20 xviii Acknowledgments Acknowledgements The writers of Rode's Report express their sincere thanks to: 1. Sapoa, for use of the basic data from their office vacancy surveys, which we analysed further. 2. Medium-Term Forecasting Associates (MFA) of Stellenbosch, for the use of their monthly forecast of building-input costs (Haylett), as well as their leading indicator of building activity. Also for their kind permission to publish the Bureau for Economic Research s building-cost index, to which they hold the marketing rights. 3. Absa for the use of their home-building-cost index. 4. Davis Langdon, an AECOM company, for the use of their building cost data for various building types. 5. Nicole Maytham, who manages the surveys and compiles the annexures and Lynette Smit and Juwayra Januarie for their technical assistance. 6. All the panellists who so kindly gave of their time and expertise in responding to our surveys. The complete list of panellists who contribute to the RR, together with their codes, appears on the following page. For each of the survey tables in the RR you will find, listed against every node or area, the codes for all the panellists who contributed information this quarter. 7. Ken Gardner, who has the task of making sure that all gross grammar mistakes are corrected. 8. The JSE Securities Exchange, Statistics South Africa and the Bond Exchange of South Africa for the use of their data. 9. Other property practitioners throughout South Africa, experts in their fields, too numerous to mention individually. Without the generous assistance of these professionals, much of our research would be impossible.

21 xix Foreword Foreword Dear Reader Welcome to the second issue of Rode s Report on the South African Property Market (RR) for 2015, which reports on surveys conducted in the first quarter of As usual, we report on movements of a number of critical property variables, ranging from capitalization rates, rentals, escalation rates, land values, and operating costs for the non-residential property market, to changes in house prices and flat rentals in the residential property market. If you want to communicate with a specific niche market, you can contact Lynette Smit on for RR advertising rates. Biancé Johnson and Lynette Smit are in charge of expanding our survey panel. Their job is to give you access to the opinions of as many property experts as possible. We appeal to all market participants, who feel they have what it takes to become an RR panellist, to please contact Biancé on or Lynette on it s for the benefit of everyone in the industry. As a panellist you will also get invaluable exposure. Readers are again reminded of our website which contains interesting and relevant property-related articles, most of which are published in our monthly e-newsletter, to which readers can subscribe through our website. It s free of charge. Sincerely John S. Lottering Editor July 2015

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23 xxi In Memoriam In memoriam All-rounder Tobie de Vos raced to the last Tobias Johannes de Villiers de Vos, better known as Tobie de Vos, went for his regular track training in Pretoria on the afternoon of Saturday, 28 March There is nothing extraordinary about this, except that he was 78 years old. After the training he felt unwell and barely reached home. His wife, Henriëtte, called an ambulance and he was hospitalised with an impaired heart that was beyond saving. The next day he died. When I established Rode & Associates in 1987, I asked Tobie to become a member of the advisory board, as he was the most multi-faceted person I had yet met. He had a BComHonEcon from Rhodes University (1959) and an MComEcon from Stellenbosch (1964). His MBA he got from Pretoria in 1966, and his PhD BusEcon from Wits in To round off his knowledge of the built environment, he completed an MSc (Town and Regional Planning) at Pretoria in He spent most of his working life at the CSIR in Pretoria, working in departments such as industrial economics, road economics, and building economics. He authored or co-authored more than 90 research reports, publications and papers in the field of economics, business economics, housing requirements, housing finance & building economics, and integrated development. In 1991 he received the NAHB Quality Service Award "in recognition of his valuable contribution over many years in the field of economic forecasting and research into many aspects of the building industry". For a long time he was an external examiner at Wits and UNISA for theses up to doctorate level. Valuers will be glad to hear that Tobie was also an active, registered property valuer. In his later years he achieved Springbok colours as a veteran track and field athlete. Oh, and before I forget, he also played the piano. Tobie leaves his wife, Henriëtte, and four children, Arno, Werner, Ilze and Gerhard. Erwin Rode

24 Property is constantly in the limelight and investors are searching for meaningful, property-specific information. This makes a compelling argument for finely-targeted advertising in the Rode s Report on the SA Property Market. This independent analysis is one of the most widely-read publications of its kind. Target audience: Rode s Report is targeted at investors and property practitioners such as property developers, property managers, landlords, merchant banks, commercial banks and non-residential property brokers. Continued exposure: A quarterly publication, Rode s Report is used as a reference source with a long shelf life. Rates and special advertising offers: Take advantage of Rode s special advertising offer: a first-timer offer of 10% less on our list price. Normal rates appear on the Rode website. Advertise on Rode s website: For an extension of your marketing, also consider an advertisement on the Rode website. Telephone lynette@rode.co.za Website

25 1 General Article A tool to calculate covered office parking rentals anywhere John S. Lottering Ever since the first quarter of 1993, Rode s Report (RR) has been publishing average monthly parking rentals for office buildings by grade. In this issue of the report, we attempt to quantify the relationship between office parking and office rentals. We postulate a positive relationship between these two variables, viz. that higherquality office buildings with good facilities and in better locations (which command higher office rentals) also achieve higher parking rental rates. This is so in spite of the fact that parking being utilitarian space cannot really be graded. In our analysis, we regressed achievable monthly rental rates per bay for covered reserved parking in grades-a +, A, B and C office buildings in the various office nodes as reported in Tables 5.1 and 5.3 of this issue of RR against their corresponding market office rental rates. All the data is for the first quarter of Table 1 summarizes important descriptive statistics of the dataset that was used. As the table shows, 1159 observations were used in the analysis. This consisted of 35 grade-a +, 44 grade-a, 44 grade-b and 36 grade-c observations. The mean parking rental was R511 /bay/ month and the mean gross office rental was R104/m²/ month. The parking rental standard deviation of R130 implies that there is a 68% chance that true parking values will lie between R511 R130 = R381 and R511 + R130 = R641. Similarly, there is also is a 68% chance that true office rental values will lie between R104 R26 = R78 and R104 + R26 = R130. The highest (maximum) parking rental of R1.250 was for parking in grade-a + office buildings in the Cape Town CBD, while the highest (maximum) rental of R191 was for grade-a + office buildings in the Sandton CBD. The corresponding graph shows the positive relationship between office rentals and parking rentals. Table 1 Descriptive statistics of dataset Parking (Rands/bay/month) Rental (Gross; rands/m²/month) Observations (n) Mean R511 R104 Median R500 R98 Maximum R1.250 R191 Minimum R345 R60 Standard deviation R130 R26 Source of data: Rode s Time Series; Rode calculations

26 2 General Article The regression line (or line-of-best-fit) we obtained had the following equation: Office parking rental = 169,16 + (3,283 *gross market rental) where Office parking rental = covered reserved parking in rands per bay per month. Gross market rental = gross market rental per rentable m² achieved on grades A +, A, B or C. Note, however, that the relationship between office rentals and parking rentals is not explained very well by this linear regression equation (the coefficient of determination (r²) is only 0,4 which means variations in office rentals explain about 40% of variations in parking rentals). To try to improve the fit of the equation, we considered dummy variables for the various office grades. A dummy variable is one which takes on the value of 1 or 0, depending on whether a specified condition holds. For example, for a grade-a + dummy variable all grade-a + parking and office rental observations will be assigned a value of 1, whereas observations for other grades of office space will be assigned a value of 0. For a grade-a dummy variable all grade- A parking and office rental observations will be assigned a value of 1, whereas observations for other grades of office space will be assigned a value of 0. Historically, and as shown in the preceding graph, parking in the CBD of Cape Town has always been more expensive than anywhere else in the country. For this reason, we also included a Cape Town CBD dummy variable. We estimated the following equation: Office parking rental = C + β1*gmr + β2*d1 + β3*d2 + β4*d3 + β5*d4

27 3 General Article where obtained has the following equation: Office parking rental = market covered reserved parking in rands per bay per month GMR = gross market rental per rentable m² achieved on grades A +, A, B or C office space. D1 = grade-a + dummy variable, taking on the value of 1 if observation is for grade-a + office property, and 0 if otherwise. D2 = grade-a dummy variable, taking on the value of 1 if observation is for grade-a office property, and 0 if otherwise. D3 = grade-b dummy variable, taking on the value of 1 if observation is for grade-b office property, and 0 if otherwise. D4 = Cape Town CBD dummy variable, taking on the value of 1 if observation is for office property in the CBD of Cape Town, and 0 if otherwise. Office parking rental = 213,4 + 2,3*GMR + 87,2*D1 + 54,9*D2 + 34,0*D *D4 R²=0,9 n = 159 All the explanatory (predictor) variables the variables on the right-hand side of the equation are statistically significant, while the high coefficient of determination (R²=0,9) implies that the relationship between office rentals and parking rentals is explained very well by the linear regression equation. How to interpret the coefficients? A R1,00 increase in the monthly office rental rate (GMR) will increase the monthly parking rent by R2,3. Grade-A + parking rentals are typically R87 higher than grade-c parking rentals, grade-a parking rentals are typically R55 higher than grade- C parking rentals and grade-b parking rentals are typically R34 higher than grade-c parking rentals. Parking rentals in the Cape Town CBD are generally R550 per bay per month more expensive than in the country s other office nodes. C = constant or intercept term β1 to β5 = coefficients to be estimated by the regression. The reader will notice that a grade-c dummy variable is not included in our equation. This is so because we want to assess the impact of the higher office grades on parking rentals relative to parking space attached to grade C. As a result, the coefficients of the other dummy variables are measured relative to the grade-c category. The regression line (or line-of-best-fit) we Consider, for example, the case of a node where the current achievable grade-a office rental is around R110/m²/ month. What is the most likely covered-parking rental rate for this node? Office parking rental = 213,4 + 2,3*(110) + 87,2*(0) + 54,9*(1) +34,0*(0) + 550*(0) Office parking rental = 213,4 + 2,3*(110) + 54,9 R521/ bay/ month Next, consider the case of a node where the current achievable grade-c office ren-

28 4 General Article tal is around R65/m²/ month. The estimated parking rental for this node would be: Office parking rental = 213,4 + 2,3*(65) + 87,2*(0) + 54,9*(0) +34,0*(0) + 550*(0) Office parking rental = 213,4 + 2,3*(65) R363/ bay/ month. Finally, assume a grade-a + office market rental of about R150 in the Cape Town CBD. What is the estimated parking rental here? Office parking rental = 154,01 + 2,67*(150) + 76,31*(1) + 62,22*(0) + 45,74*(0) + 567,12*(1) Office parking rental = 154,01 + 2,67*(150) + 76, ,12 R1.198/ bay/ month. The reader should note that this equation should rather not be used to estimate the covered parking rental rates for nodes with office rentals of much less than R60/m², or much greater than R191/m². Enjoy!

29 5 State of the property market Chapter 1: State of the property market State of the property market in quarter 1 of 2015 The following are the significant findings or conclusions made in this issue of Rode s Report: Office rentals feeling the pinch Industrial property s support pillars remain fragile Growth in house prices slowly losing its momentum Quantitative overview of the property market Table 1.1 provides a snapshot of how the property market has performed over the past four quarters by comparing the latest information (quarter 2015:1) with that collected a year earlier. Table 1.1 The property market at a glance at quarter 2015:1* % growth on four quarters earlier (on smoothed data) Nominal Real** A-grade decentralized office rentals National decentralized 4,3-2,3 Sandton CBD -3,5-9,9 Randburg Ferndale -0,4-7,1 Brooklyn/Waterkloof (Pta) 5,4-1,6 Hatfield 4,2-2,7 Berea (Durban) 2,0-4,9 La Lucia Ridge 1,9-4,9 Tyger Valley 1,4-5,4 Claremont 11,7 4,2 Century City 1,6-12,1 A-grade CBD office rentals Johannesburg 8,7 1,5 Pretoria 1,6-5,2 Durban 3,4-3,5 Cape Town 5,2-1,8

30 6 State of the property market Table 1.1 (continued) The property market at a glance at quarter 2015:1* % growth on four quarters earlier (on smoothed data) Nominal Real** Prime industrial rentals (500-m² units) National 4,1-2,9 Central Witwatersrand 2,8-4,1 East Rand 3,7-3,2 Durban metro 5,2-1,8 Cape Peninsula 6,0-1,1 Flat rentals (standard quality, all sizes) National 5,2 1,1 Johannesburg metro 2,2-1,9 Durban metro 7,2 2,9 Cape Town metro 6,6 2,4 Bloemfontein metro 5,4 1,2 * Unless otherwise specified ** Nominal values deflated by BER Building Cost Index; however, flat rentals are deflated using the Consumer Price Index. Office rentals For now, the growth prospects for market rentals of office buildings remain modest. This as an underperforming services sector is likely to continue to place a lid on the demand for office space. In the first quarter of 2015, market rentals for grade-a office space on a national basis mustered growth of roughly 4%. The general trajectory of the national office vacancy rate has been north since 2012, which explains the moderate growth in market rentals. Of course, the main reason for the uptick in national office vacancy rates was waning demand for office space on the back of lacklustre economic growth, and on the supply side bold development activity in nodes like Sandton, Cape Town CBD, Century City and Umhlanga Ridge Nonetheless, at the regional level, the strongest yearly growth in market rentals was recorded in Cape Town decentralized (+7%). It was followed by Pretoria and Johannesburg decentralized, where rentals were on average up by 5% and 4% respectively. In the reporting quarter, rentals in Durban decentralized (+1%) showed the weakest growth. Industrial market Until there is a significant turnaround in the performances of the manufacturing and retail sectors, strong growth in industrial market rentals cannot be expected. In the first quarter of 2015, market rentals for prime industrial property in the Cape Peninsula showed the best yearly growth of 6%. This was followed by Durban and the East Rand, where rentals were up by 5% and 4% respectively. On the Central Witwatersrand, rentals could only muster growth of roughly 3%. Over the same period, building costs are expected to have shown growth of about 7%. This implies that in all of these major industrial conur-

31 7 State of the property market bations, market rentals are still unable to show real growth. The yearly growth in manufacturing output and retail sales volumes has, in general, waned since Households that are overwhelmed by debt, high unemployment, modest household credit growth and sharply slumping consumer confidence do, for now, still presage meek growth in retail sales volumes. As for the manufacturing sector, despite weak domestic conditions, the single largest hindrance to production remains the unreliable supply of electricity. The house market The yearly growth in national house prices is gradually losing its momentum, which should not come as a surprise as key drivers of house prices are still struggling. After heating up to a yearly growth rate of 10% in the second quarter of 2014, the growth in national house prices has since cooled to 6% in June Interesting is how sharp the deceleration in the monthly (annualized) growth has been. This implies that the cooling in yearly growth rates will continue. For now, many factors remain that are likely to further dampen the growth in house prices. Consider here: Weak economic activity and its likely damper on growth in employment and disposable income. Also, the public sector s employeeappointment and salary-boosting sprees will come to end as the fiscus is under severe pressure. If not, we could find ourselves in a Greece-like situation overnight. Still-high household debt-todisposable income levels. The ratio of debt-to-disposable income of households has decreased since 2009 but the ratio remains uncomfortably high at 78%. The disproportionate increases in administered prices, which negatively affect affordability. Consumer confidence levels that are fast sliding, which will affect the willingness of households to make substantial financial commitments, such as buying a house. The only positive factor for house prices is the continuing low level of new supply being added to the stock of houses. This means that when the negative factors disappear one day, the upward house price correction will be enormous. But this, we reckon, is many years away. Flat rentals The growth in flat rentals is slowly accelerating and is now at more or less the consumer-inflation rate. However, given households that remain financially stretched, a strong and sustained recovery in flat rentals cannot, for now, be expected. In the first quarter of 2015, national market flat rentals again gained a bit of momentum as they grew at a yearly rate of roughly 5%. Of course, considering consumer inflation was roughly 4% over the same period, this implies that flat rentals have shown some real growth. Zooming in on the performances at the regional level, we can see respectable inflation beating growth of 7% in Cape Town, Durban and Port Elizabeth. Elsewhere, in Johannesburg, Pretoria and Bloemfontein, growth in flat rentals ranged between 2% and 5%.

32 8 Standard capitalization rates Chapter 2: Capitalization rates Steady cap rates despite gathering clouds John S. Lottering The market s rating of directly-held nonresidential property continues to remain stable, this despite the dark clouds of a threatening storm hovering over the SA economy. Notwithstanding the tremendous strain under which the demand-side of retail property finds itself, capitalization rates of regional centres moved sideways over the past year. This is an indication of the continued appeal of shopping centres to the big property players, namely the listed funds. Similarly, in spite of the woes of the manufacturing sector, capitalization rates of prime industrial property have also remained firm. stayed at roughly their previous-quarter levels. In the first quarter of 2015, investors in regional centres required an income return of between 7,4% and 7,9% to induce them into buying or selling regional centres. Note that regional centres are the second largest type of centre. Superregional centres (> m²) command even lower capitalization rates. % Capitalization rates Regional shopping centres Nationally, office vacancy rates have trekked north since Despite this, the market s rating of prime office property has also remained steady Central Witwatersrand Cape Peninsula Durban Pretoria Source of data: Rode's Time Series One explanation for the resilience of capitalization rates is the conservative LTV (loan-to-value) policies of mortgage lenders. This created a margin of safety when the dark clouds started to gather due to the low economic growth environment. Another possible explanation until now has been the continued good rating of the listed property sector. This afforded the listed funds the opportunity to buy directlyheld property at keen prices (low capitalization rates). Investors in community and neighbourhood centres required, on average, higher income returns of 9% and 10% respectively. Vacancy rate (%) Regional Community Neighbourhood Shopping centre vacancy rates ex IPD 4 Shopping centres 2 Across the major regions, capitalization rates of regional shopping centres also Source of data: IPD South Africa Annual Digest 2014

33 9 Standard capitalization rates The higher required income returns on community and neighbourhood centres are, of course, related to the higher perceived risk associated with their expected income streams, as well as expected lower growth in net income. The accompanying line graph shows that since 1998 vacancy rates of the smaller centres parted company with those of regional centres, signifying a step change in the risk associated with the smaller categories of centres. Presumably it was a supplyside phenomenon, in that the lower interest-rate regime allowed smaller (noninstitutional) developers to enter the market. This in turn resulted in a structurally greater supply of small-centre GLA. Persistently high vacancy rates can act as a predictor or proxy for lower total returns and, therefore, higher capitalization rates. This is vividly illustrated by the accompanying scatter graph, which shows a pretty strong positive relationship between vacancy rates and income returns (a proxy for capitalization rates) over a period of five years. Note the income return data used in the scatter graph is sourced from the IPD empirical database. This means that these income returns are historic (or trailing) yields as opposed to capitalization rates, which are forward income returns. We can also deduce from the scatter graph that lower-vacancy centres (the larger malls) yield lower income returns (that is, they command lower capitalization rates), which imply higher market values. This is empirical evidence that size does count. But then Rode s capitalization rate surveys have been showing this for decades. Income return (%) y = 0,4999x + 6,1288 r² = 0,8 Regional Shopping centres Vacancy rate vs income return (5 year ave.; ) Super regional Small regional Neighbourhood Community Vacancy rate (%) Source of data: IPD Annual Digest 2014; Rode calculations

34 10 Standard capitalization rates Prime industrial leasebacks Capitalization rates Prime industrial leasebacks 10,4% in Randburg. Note the word mean in the prior sentence. It implies rates could be higher or lower than the mean Smoothed Capitalization rates Prime Johannesburg decentralized offices Bryanston Rivonia Sunninghill Randburg % % Cape Peninsula Durban Pretoria Central Witwatersrand Source of data: Rode's Time Series Capitalization rates on industrial leasebacks in all of the major industrial conurbations also remained at their previous-quarter levels. In the reporting quarter, our respondents were still of the opinion that investors in prime industrial property (with a leaseback covenant) required a minimum net normalised income yield of between 8,5% and 9% in the top cities and nodes. Prime offices Johannesburg decentralized Source of data: Rode's Time Series Pretoria decentralized In the Pretoria decentralized office nodes of Centurion, Hatfield, Brooklyn and Midrand, prime- office capitalization rates also stayed at roughly the previous-quarter levels. Here, capitalization rates ranged from as low as 9% in Brooklyn to as high as 10% in Midrand. Office vacancy rates for prime property in Pretoria decentralized remain uncomfortably high (see Chapter 6). Of course, should this situation persist, the outcome might be upward pressure on capitalization rates Smoothed Capitalization rates Prime Johannesburg decentralized offices Smoothed Capitalization rates Prime Pretoria decentralized offices Brooklyn Hatfield Centurion Midrand % % Sandton CBD Parktown Rosebank Midrand Source of data: Rode's Time Series Source of data: Rode's Time Series In the reporting quarter, there was also not much change in the market s rating of prime office property in the suburban office nodes of Johannesburg. Still, mean capitalization rates on grade-a multitenanted properties in Johannesburg decentralized ranged between as low as 8,6% in the Sandton CBD to as high as Durban decentralized The Durban decentralized office nodes of La Lucia / Umhlanga Ridge and Westway remain the most sought-after nodes in Durban decentralized, as is evidenced by their lower capitalization rates. In La Lucia / Umhlanga Ridge, for example, our re-

35 11 Standard capitalization rates spondents were of the opinion that investors were willing to buy or sell grade-a multi-tenanted property at income returns of about 8,4%. The standard deviation of 0,6% implies that the capitalization rate can even be as low as 7,8%. In the less exclusive node of Berea, capitalization rates were higher at around 10% Smoothed Capitalization rates Prime Durban decentralized offices spondents are of the opinion that investors interested in trading prime office property in the nodes of Tyger Valley, Century City, Westlake and Claremont would require a minimum net income return of about 9% to do so. A boon to the capitalization rate outlook in Claremont must be the currently falling and low office vacancy rates (see Chapter 6) which, it seems, have also spurred on strong growth in market rentals (see Chapter 5). 13 Capitalization rates Prime Cape Town decentralized offices Smoothed % Umhlanga Ridge Westway Essex Terrace Berea % Source of data: Rode's Time Series Cape Town decentralized 10 9 Claremont Tyger Valley Century City Westlake Source of data: Rode's Time Series As observed everywhere else, capitalization rates in Cape Town decentralized on the whole also showed no change when compared to the previous quarter. Our re- This concludes our analysis of capitalization rates. The capitalization-rate tables follow. Interpretation tip: It is dangerous to rely on one quarter s figure, as it may be an outlier owing to small sample sizes. Instead, consider the trend or contemplate using the average of at least two quarters for a more accurate assessment. For this reason, the graphs accompanying this article are smoothed. A standard capitalization rate (colloquially referred to as a cap rate) is the expected net operating income for year 1, assuming the entire building is let at open-market rentals, divided by the purchase price. This calculation ignores VAT, transfer duty and income tax, and assumes a cash transaction. All references in Rode s Report to cap rates and capitalization rates mean standard capitalization rates. Capitalization rates for CBDs (excluding the Cape Town CBD) are of little use because when office properties are sold, they are invariably converted to flats.

36 12 Standard capitalization rates The high standard deviation from the mean capitalization rate for office and industrial properties in some nodes, as reported in the accompanying capitalization rate tables, is indicative of the uncertainty prevailing in these nodes or areas. With few sales taking place, the evidence on ruling capitalization rates is thin and opinions vary more than in the more popular areas. This means that the income-producing property market has become even more inefficient in these nodes which makes the valuation of these properties a rather hazardous exercise. We are indebted to our expert capitalization rate panel, comprising major owners and leading brokers who know their market segments intimately. This survey would not be possible without their invaluable contributions. Codes of those panellists who supplied information for this quarter's survey appear in the tables on the following pages. An explanation of the con-tributor codes can be found on p. xii.

37 13 Standard capitalization rates Best location Table 2.1 Survey of capitalization rates (%) Office buildings Means for quarter 2015:1 Grade A: Multi-tenant Grade A: Leaseback Grade B: Multi-tenant Grade C: Multi-tenant Mean SD n Mean SD n Mean SD n Mean SD n Johannesburg CBD 10,5 0,1 2 10,0 0,1 2 11,5 0,4 2 13,0 0,1 2 Braamfontein 10,3 0,1 2 9,8 0,0 2 11,3 0,4 2 12,7 0,2 2 Parktown 9,9 0,2 2 9,7 0,0 2 10,7 0, Rosebank 9,0 0,4 2 8,5 0,7 2 9,9 1,0 2 10,6 1,6 2 Sandton CBD 8,7 0,3 2 8,4 0,2 2 9,4 0, Rivonia 9,5 0,4 2 9,1 0,1 2 10,2 0, Bryanston 9,3 0,4 2 9,0 0,0 2 10,2 0,6 2 11,7 0,6 2 Sunninghill 9,5 0,0 2 9,1 0,1 2 10,3 0,4 2 12,0 0,4 2 Randburg Ferndale 10,3 0,3 3 10,2 0,6 3 11,1 0,9 3 12,5 0,9 3 Midrand 9,8 0,3 3 9,4 0,4 3 10,7 0,6 3 12,0 0,6 3 Germiston CBD 11,2-1 11,4 0,2 2 12,5 0,3 2 13,5 0,0 2 Pretoria CBD 10,3 0,3 3 9,7 0,4 3 11,5 0,2 3 12,6 0,5 3 Hatfield 9,8 0,3 3 9,3 0,3 2 10,6 0,5 3 11,5 0,7 3 Brooklyn 9,1 0,2 3 9,0 0,1 3 10,1 0,3 3 10,9 0,9 3 Centurion 9,8 0,2 4 9,6 0,3 4 10,8 0, Menlyn/Lynnwood 9,2 0,2 3 9,0 0,5 3 10,0 0,2 3 10,9 0,9 3 Vaal Triangle 10,2 0,1 2 10,2 0,1 2 11,5 0,3 2 12,5 0,6 2 Nelspruit 10,2 0,3 3 9,8 0,3 3 11,2 0,3 3 12,7 0,2 3 Polokwane 10,1 0,1 2 9,8 0,1 2 11,1 0,1 2 12,1-1 Durban CBD 10,2 0,3 2 10,0 0,0 2 11,7 0,2 2 13,0-1 Berea 10,3 0,2 2 9,8 0,0 2 11,1 0,1 2 12,9-1 Essex Terrace 9,3-1 9,3-1 10,3-1 12,0-1 Westway 8,3 0,4 2 8,1 0,5 2 9,3 0,4 2 12,0-1 La Lucia / Umhlanga Ridge 8,4 0,6 3 8,3 0,7 3 9,7 0,6 3 11,4 0,6 2 Pietermaritzburg 10,3 0,0 2 10,1 0,1 2 11,8 0,3 2 13,4 0,5 2 Cape Town CBD 8,9 0,6 4 8,5 0,3 4 9,5 0,3 4 10,5 0,8 3 Bellville CBD ,4 0,2 2 9,8 0,6 4 11,0 1,0 3 Bellville Tyger Valley 9,3 0,4 3 8,8 0,3 3 9,8 0,3 3 10,8 1,1 2 Century City 8,5 0,0 2 8,8 0,4 2 9,5 0, Westlake 8,6 0,2 2 8,9 0,2 2 9, Claremont 8,7 0,3 2 8,8 0,4 2 9, Port Elizabeth 9,5 0,3 3 9,4 0,2 3 11,0 0,0 3 12,8 0,3 3 East London 9,3 0,0 2 9,1 0,2 2 10,9 0,2 2 12,8 0,7 2 Bloemfontein CBD 9,6 0,5 3 9,6 0,5 3 11,0 0,1 3 12,6 0,5 3 n = Number of respondents = Not available fewer than two respondents SD = See Glossary of terms and abbreviations in Annexure 1.

38 14 Standard capitalization rates Best location Table 2.2 Change in capitalization rates (% points) Office buildings Means for quarter 2015:1 less quarter 2014:4 Grade A: multi Grade A: Leaseback Grade B: multi Grade C: multi Broker & owner contributors Johannesburg CBD 0,2 0,4 0,1 0,4 QU, TH Braamfontein 0,4 0,4 0,4 0,6 QU, TH Parktown 0,3 0,3 0,2 - QU, TH Rosebank 0,1-0,2 0,4 0,0 QU, TH Sandton CBD 0,2 0,2-0,1 - QU, TH Rivonia 0,2 0,1 0,0 - QU, TH Bryanston 0,1 0,0 0,0 0,0 QU, TH Sunninghill 0,0 0,0 0,0 0,0 QU, TH Randburg Ferndale -0,2-0,4-0,5-0,5 AI, QU, TH Midrand -0,1-0,1 0,2-0,1 AW, QU, TH Germiston CBD 0,0 0,1-0,2 0,0 QU, TH Pretoria CBD 0,2 0,2 0,2 0,0 AI, QU, TH Hatfield 0,1 0,0 0,3 0,0 AI, QU, TH Brooklyn -0,1 0,1 0,0 0,1 AI, QU, TH Centurion 0,1 0,3 0,2 - AI, MAS, QU, TH Menlyn/Lynnwood 0,3-0,1 0,0 0,1 AI, QU, TH Vaal Triangle 0,0 0,0 0,0 0,1 QU, TH Nelspruit 0,2 0,1 0,1 0,0 PM, QU, TH Polokwane -0,1 0,5 0,0 0,0 QU, TH Durban CBD -0,3 0,0 0,0 0,0 QU, TH Berea 0,1 0,0 0,0 0,0 QU, TH Essex Terrace 0,1 0,1 0,1 0,0 QU Westway -0,1-0,1 0,1 0,0 MW, QU La Lucia Ridge -0,1 0,0 0,0 0,0 MW, QU, TH Pietermaritzburg 0,0 0,0 0,0 0,0 QU, TH Cape Town CBD 0,2-0,1-0,1 0,4 FLP, GB, JH, QU, TH Bellville CBD - -0,4-0,4-0,2 GB, JH, OJ, QU Bellville Tyger GB, OJ, QU 0,2-0,2 0,0 0,8 Valley Century City -0,3 0,1 0,4 - GB, QU Westlake -0,3 0,1 0,0 - GB, QU Claremont -0,7-0,4-0,2 - GB, QU Port Elizabeth -0,2-0,2 0,0 0,2 IPM, QU, TH East London 0,1-0,1-0,1-0,4 IPM, QU Bloemfontein CBD -0,1 0,0-0,2 0,0 MAS, QU, TH NB: The number of broker/owner codes does not necessarily match the sample size as indicated by the n in the table on page 13. This is so because several of our owner contributors wish to remain anonymous, but we do not show multiple ZZ codes in the table.

39 15 Standard capitalization rates Best location Table 2.3 Survey of capitalization rates (%) Industrial buildings Means for quarter 2015:1 Prime leaseback (AAA Tenant) Prime quality non-leaseback Secondary quality building Prime industrial park Mean SD n Mean SD n Mean SD N Mean SD n Central Wits 8,9 0,1 4 9,2 0,2 3 10,5 0,5 3 10,3 0,4 3 West Rand 9,4 0,2 2 9,7 0,1 2 10,6 0,2 4 10,8 0,3 2 East Rand 9,0 0,0 2 9,5 0,1 2 10,4 0,2 2 10,1 0,1 4 Far East Rand 9,4 0,2 2 10,0 0,3 2 10,8 0,1 2 10,6 0,2 4 Pretoria 9,0 0,0 3 9,9 0,2 3 10,7 0,3 3 10,8 1,1 3 Vaal Triangle 9,4 0,1 2 10,2 0,4 2 10,6 0,1 2 11,0 0,1 2 Nelspruit 9,8 0,6 3 10,1 0,3 3 10,8 0,3 3 10,3 0,3 3 Polokwane 9,5 0,0 2 9,5 0,7 2 10,1 0,8 2 10,6 0,8 2 Durban 8,5 0,4 4 9,1 0,4 4 10,0 0,7 4 9,5 0,6 4 Pietermaritzburg 9,3 0,0 2 9,7 0,3 2 11,0 0,1 2 10,6 0,1 2 Cape Peninsula 8,6 0,4 4 9,2 0,1 3 10,3 0,6 3 9,3 0,3 3 Port Elizabeth 9,3 0,2 3 9,6 0,3 3 11,0 0,0 3 10,0 0,3 3 East London 9,5 0,0 2 10,0 0,7 2 10,9 0,2 2 9,9 0,5 2 Bloemfontein 9,5 0, ,1 0,1 3 10,8 0,9 3 n = Number of respondents = Not available fewer than two respondents SD = See Glossary of terms and abbreviations in Annexure 1. Best location Table 2.4 Change in capitalization rates (% points) Industrial buildings Means for quarter 2015:1 less quarter 2014:4 Prime leaseback Prime nonleaseback Secondary quality building Prime Industrial park Broker & owner contributors Central Wits 0,4-0,2-0,2-0,2 AW, JH, QU, TH West Rand 0,1 0,0-0,1 0,0 JH, QU, TH East Rand 0,5 0,4-0,1 0,0 JH, QU, TH Far East Rand 0,1 0,0 0,0-0,1 JH, QU, TH Pretoria 0,0 0,2 0,1 0,8 AI, QU, TH Vaal Triangle 0,0 0,0-0,3 0,4 QU, TH Nelspruit 0,3 0,2 0,2 0,0 PM, QU, TH Polokwane 0,0-0,5-1,0 0,0 QU, TH Durban 0,0-0,1-0,2-0,1 MW, QP, QU, TH Pietermaritzburg 0,0 0,0 0,1 0,0 QU, TH Cape Peninsula -0,2-0,1 0,3-0,2 JH, QU, TH, WD Port Elizabeth 0,1-0,1-0,3 0,3 IPM, QU, TH East London 0,0-0,5 0,1-0,3 IPM, QU Bloemfontein 2,3 - -0,3 0,0 MAS, QU, TH NB: The number of broker/owner codes does not necessarily match the sample size as indicated by the n in table 2.3. This is so because several of our owner contributors wish to remain anonymous, but we do not show multiple ZZ codes in the table.

40 16 Standard capitalization rates Table 2.5 Survey of capitalization rates (%): shopping centres Means for quarter 2015:1 Best location Super regional Regional Community Mean SD n Mean SD n Mean SD n Witwatersrand 7,2 0,2 2 7,5 0,3 2 8,8 0,0 2 Pretoria 7,1 0,2 3 7,9 0,1 3 8,9 0,1 3 Vaal Triangle 7,4 0,2 2 8,0 0,0 2 9,1 0,1 2 Nelspruit 7,5 0,0 2 8,0 0,0 3 8,8 0,3 3 Polokwane 7,7 0,1 2 8,1 0,1 2 9,1 0,1 2 Durban 7,3 0,4 2 7,9 0,2 2 8,9 0,2 2 Pietermaritzburg 7,6 0,1 2 8,1 0,0 2 9,2 0,0 2 Cape Town 7,6 0,5 4 7,6 0,4 4 8,6 0,2 3 Port Elizabeth 7,8 0,4 2 8,2 0,0 2 9,4 0,1 3 East London ,4 0,2 2 Bloemfontein 7, ,1 0,1 3 Platteland ,3-1 Townships ,4 0,2 2 n = Number of respondents = Not available SD = See Glossary of terms and abbreviations in Annexure 1. Table 2.5 (continued) Survey of capitalization rates (%): shopping centres Means for quarter 2015:1 Best location Neighbourhood Local convenience Retail warehouse Mean SD n Mean SD n Mean SD n Witwatersrand 9,7 0,2 2 10,6 0,1 2 9,5 0,0 2 Pretoria 9,7 0,2 4 10,3 0,4 4 9,8 0,2 4 Vaal Triangle 10,0 0,1 2 10,8 0,0 2 9,9 0,1 2 Nelspruit 9,8 0,3 3 10,7 0,2 3 9,9 0,1 3 Polokwane 10,1 0,2 2 10,9 0,1 2 9,9 0,1 2 Durban 9,8 0,1 2 10,6 0,1 2 9,7 0,0 2 Pietermaritzburg 10,3 0,3 2 10,9 0,1 2 9,9 0,1 2 Cape Town 8,7 0,6 4 9,3 0,7 4 8,6 1,1 4 Port Elizabeth 10,0 0,1 3 11,0 0,1 3 10,0 0,1 3 East London 10,1 0,2 2 11,1 0,2 2 10,4 0,5 2 Bloemfontein 10,0 0,0 3 10,9 0,1 3 10,8 1,1 3 Platteland 10,3-1 11,0-1 10,5-1 Townships 10,2 0,0 2 10,6 0,1 2 10,3 0,3 2 n = Number of respondents = Not available SD = See Glossary of terms and abbreviations in Annexure 1.

41 17 Standard capitalization rates Table 2.6 Change in capitalization rates (% points): shopping centres Means for quarter 2015:1 less quarter 2014:4 Best location Super regional Regional Community Witwatersrand 0,4 0,5 0,4 QU, TH Pretoria 0,2 0,5 0,2 AI, MAS, QU, TH Vaal Triangle 0,0 0,0 0,0 QU, TH Nelspruit 0,0 0,0-0,2 PM, QU, TH Polokwane 0,0 0,0 0,0 QU, TH Durban 0,1 0,0 0,0 QU, TH Pietermaritzburg 0,1 0,0 0,0 QU, TH Cape Town 0,1-0,1 0,1 FLP, GB, QU, TH Port Elizabeth -0,4-0,5-0,1 IPM, QU, TH East London - - 0,2 IPM, QU Bloemfontein 0,0-0,0 MAS, QU, TH Platteland ,2 QU Townships - - 0,4 QU, TH Broker & owner contributors Table 2.6 (continued) Change in capitalization rates (% points): shopping centres Means for quarter 2015:1 less quarter 2014:4 Best location Neighbourhood Local convenience Retail warehouse Witwatersrand 0,1 0,0 0,0 QU, TH Pretoria 0,0-0,2 0,0 AI, MAS, QU, TH Vaal Triangle 0,1 0,0 0,0 QU, TH Nelspruit -0,4-0,1 0,0 PM, QU, TH Polokwane -0,1 0,3 0,0 QU, TH Durban 0,0 0,0 0,0 QU, TH Pietermaritzburg 0,0 0,0 0,0 QU, TH Cape Town -0,4 0,0-0,4 FLP, GB, QU, TH Port Elizabeth 0,0 0,0-0,3 IPM, QU, TH East London -0,1-0,1-0,4 IPM, QU Bloemfontein 0,0 0,0 0,1 MAS, QU, TH Platteland -0,1-0,1-0,3 QU Townships -0,1 0,0 0,0 QU, TH Broker & owner contributors

42 18 Standard capitalization rates Best location Table 2.7 Survey of capitalization rates (%): street-front shops Means for quarter 2015:1 Metro CBD Decentralised Mean SD n Mean SD n Witwatersrand 10,6 0,1 2 10,6 0,2 2 Pretoria 10,8 0,2 3 10,6 0,1 3 Vaal Triangle 10,9 0,1 2 10,7 0,0 2 Nelspruit 10,9 0,1 3 10,6 0,1 3 Polokwane 10,8 0,0 2 10,6 0,0 2 Durban 10,6 0,1 2 10,8 0,3 2 Pietermaritzburg 10,8 0,0 2 10,7 0,0 2 Cape Town 9,1 0,8 4 9,2 0,9 4 Port Elizabeth 10,3 1,1 3 10,7 0,6 3 East London 10,1 1,6 2 10,5 0,7 2 Bloemfontein 10,6 0,5 3 10,4 0,3 3 n = Number of respondents = Not available SD = See Glossary of terms and abbreviations in Annexure 1. Table 2.8 Change in capitalization rates (% points): street-front shops Means for quarter 2015:1 less quarter 2014:4 Best location Metro CBD Decentralised Broker & owner contributors Witwatersrand 0,0 0,0 AI, QU, TH Pretoria 0,1 0,0 AI, QU, TH Vaal Triangle 0,0 0,0 QU, TH Nelspruit -0,1 0,0 PM, QU, TH Polokwane 0,4 0,0 QU, TH Durban 0,0 0,0 QU, TH Pietermaritzburg 0,1 0,0 QU, TH Cape Town -0,4-0,2 FLP, GB, QU, TH Port Elizabeth -0,1 0,0 IPM, QU, TH East London -1,1-0,5 IPM, QU Bloemfontein -0,1 0,0 MAS, QU, TH

43 19 Capitalization rate equations Chapter 3: Capitalization-rate equations How to estimate capitalization rates anywhere Updated by John S. Lottering This chapter provides the reader with a handy, updated tool to estimate the market capitalization rates of various property types anywhere in South Africa, provided the user is confident about the subject property s gross market-rental rate. As the reader will see below, market-rental rates are amazingly successful in explaining the level of capitalization rates. On reflection, though, this should not be all that surprising, considering that all the good and bad news pertaining to a property is encapsulated in the ruling market-rental rate. Here we think of rental-level drivers such as: Location Risk (examples of varying risk profiles are a leaseback compared with a multitenanted property; the robustness of the covenant) Grade/age An important risk factor typically not reflected in a rental, is the design of the building, as it affects its ability to be re-let. Here one thinks of purpose-built buildings. Office-building equation In our regression analysis of office buildings, we use the market capitalization rates (dependent variables) and gross marketrental rates (predictors) of grades A, B and C buildings in the areas surveyed by Rode s Report (RR). The source of the national equation given below is this issue of RR. The regression is based on 52 observations in mainly decentralized nodes. The updated equation is: office capitalization rate % = 14,11 (0,0418*gross rental) where gross rental = the gross market rental rate per rentable m 2 per month for grades A, B or C office buildings in quarter 2015:1. The correlation coefficient r = -0,8. The standard error (SE) is 0,6 and n = 52. Thus, the moderately strong relationship between market-rental rates and capitalization rates allows the researcher to build a regression model with which to estimate the levels of capitalization rates. Readers should note that it is not advisable to use this function for gross market-rental rates that fall much outside the range of R30/m²/month to R148/m²/month.

44 20 Capitalization rate equations Example: If the gross office rental is R60 per rentable m 2 per month, then the capitalization rate is: office capitalization rate %=14,11 (0, 0418*60) = 11,6% Industrial-property equation gross rental = the gross market rental per rentable m 2 per month as in quarter 2015:1 for stand-alone prime nonleaseback or prime industrial parks or stand-alone secondary industrial space of m 2, located in primary and secondary industrial cities. The correlation coefficient r = -0,8. The standard error (SE) is 0,3 and n = 25. This national equation expresses the relationship between the capitalization rates and gross market rental rates of prime stand-alone non-leasebacks, secondary stand-alone industrial buildings, and industrial parks. The gross market rental rates are those applicable to m 2 units. The source of the data is this issue of Rode s Report. The industrial-regression equation, which is based on 25 observations, includes all primary and secondary industrial cities. The updated equation is: It is not advisable to use this function for gross market rental rates that fall much outside the range of R20/m²/month to R45/m²/month. Also, remember to use the rental rate applicable to a notional area of m² (even if the actual floor area is completely different). Example: If the gross industrial rental for a 1000 m² building, located in a primary or secondary industrial city, is R20 per rentable m 2 per month, then the capitalization rate is: industrial capitalization rate % = 12,386 (0,0694*gross rental) industrial cap rate % = 12,386 (0,0694*20)= 11,0%. where: Warning: To guard against volatility in the latest survey data, the reader is advised also to consult the regression equation and its applicable rental rate in the previous issue of RR, and to consider using a two-quarter average capitalization rate (unsurveyed) if necessary.

45 21 Capitalization rate equations

46 22 Listed property Chapter 4: Listed property The price party continues, but for how long? Written by John S. Lottering In recent months, the market s favourable re-rating of listed property on the back of firming long-bond yields has continued to push the yearly growth in prices higher Growth in listed property prices vs Change in yields Change in yields (%-points; y-o-y) The shaded area of the corresponding graph shows how listed property yields have firmed (decreased) on the back of firming long-bond yields since about the second quarter of As the graph shows, this re-rating of listed property shares resulted in robust double-digit yearly growth in listed property prices. In fact, for the year ended April 2015, listed property prices were on average up by as much as 33%. Price growth (%; y-o-y) 20 0 Long-bond yield -20 REIT yield REIT price Source of data: JSE; SARB The scatter plot that follows gives a crosssectional view of the price versus yield relationship for various listed property funds for the year ended April 2015.

47 23 Listed property Note how over the past year the yields of most listed funds firmed (decreased), resulting in strong in most cases 20%-plus yearly growth in share prices. And, how for the few funds whose yields weakened (increased), prices either showed no growth or contracted. Most important is the strong leverage effect of yields on prices, with a 1-percentage point increase/decrease in the former leading to a 27% yearly depreciation/appreciation in the latter. Measured by total returns (capital plus income return) over the past year, listed property funds were in a class of their own compared with other asset classes. For the year ended April 2015, the SA Listed Property Index recorded the highest total return of 38%, primarily as a result of strong capital growth. Listed property was followed by equities (18%), bonds (12%) and cash (7%) (see Table 4.1). As for income streams, for the half- and full-year periods ended December 2014, a number of funds were still able to report fairly impressive inflation-beating growth in distributions (see Table 4.2). Table 4.1 Asset class performance Total returns (including income yield and capital returns) April 2015 month-to-date 12-month period SA Listed Property 0,0 38,3 Bonds -0,5 11,9 Equities 4,7 17,8 Cash 0,5 6,7 Source: Catalyst Fund Managers Total returns include income yield and capital returns Table 4.2 Growth in distributions for half-and full-year period ended December 2014 Company Distribution growth (%) Period Intu Properties 0,0% Full year New Europe Prop 20,0% Full year Capital 10,0% Full year Resilient 16,3% Half year Hyprop 13,7% Half year Rockcastle 5,2% Half year Fortress (combined) 19,6% Half year Emira 9,0% Half year Hospitality (combined) -7,4% Half year Texton 11,7% Half year Synergy (combined) 3,9% Half year *Combined A and B units Source: Catalyst Fund Managers

48 24 Listed property One explanation for this might be large funds with strong ratings that are able to improve their cash flows by buying into directly-held property portfolios at cash-flow and price-enhancing prices. Another explanation as the corresponding graph seems to illustrate could be funds that have been able to reduce overall vacancy rates. This one can assume was in part done through the disposal of smaller and lower-quality properties as these typically have higher vacancy rates relative to larger and prime-quality properties. The graph shows the strong inverse relationship between distribution growth and the weighted directly-held non-residential (retail, office & industrial) property vacancy rate. Note also from the graph how the vacancy rate has been edging south since 2012, and how the growth in distributions has accelerated r²=0,8 (2002 to 2014) Listed property distribution growth vs Weighted* vacancy rate of directly-held non-residential property continuing woes of the manufacturing sector do not bode well for the growth in industrial market rentals, while stubbornly high office vacancy rates remain a bad omen for office-rental growth. For now, however, listed property returns are likely to take their direction from capital markets. But, a look at daily bond yield data seems to indicate a weakening (increasing) trend in bond yields. This we believe is primarily due to international financial markets expectation that the US Federal Reserve may raise interest rates sooner rather than later. As the graph shows, since the beginning of February 2015 up until the start of June 2015, SA long-bond yields have increased (weakened) by more than 100 basis points. Logically, should upward pressure on bond yields persist, the outcome could be a de-rating of SA listed property and possible downward pressure on prices Daily long-bond yields SA vs US 3.2 Growth in distributions (%; y-o-y) Distribution growth Vacancy rate Vacancy rate (%) SA long-bond yield (%) SA long-bond yields US long-bond yields US long-bond yield (%) *Weighted by gross rentable area Source of data: SA Reit Association; IPD Annual Digest 2014; Rode calculations As for distribution prospects, the macroenvironment within which property funds have to operate remains challenging. Households that are overwhelmed by debt, high unemployment, poor credit growth and low levels of consumer confidence do, for now, still presage modest growth in retail sales volumes. This does not augur well for growth in trading densities and, consequently, market rental growth. Also, the 6.0 II III IV I II III IV I II Source of data: SARB; FRED Table 4.3 shows the individual performances of listed property funds for different periods to the end of May 2015 (ex S.A. Reit Association). This concludes our chapter on listed property. 1.6

49 25 Listed property Table 4.3 Total return (%) on listed property funds to February 2015 Individual stock performance 1 year 3 years Accelerate 36,6% - Arrowhead A 39,0% 26,8% Arrowhead B 38,7% 34,8% Ascension A 38,2% - Ascension B 13,5% - Capital 41,2% 21,5% Delprop 19,5% - Dipula A 18,2% 17,8% Dipula B 57,7% 32,4% Emira 30,5% 20,7% Fairvest 33,9% 27,1% Fortress A 14,2% 15,3% Fortress B 192,3% 71,2% Fountainhead 24,1% 14,7% Growthpoint 18,7% 14,9% Hospitality A -5,5% 14,1% Hospitality B -58,3% -9,7% Hyprop 52,0% 32,4% Investec Prop 21,6% 18,1% Octodec 22,6% 23,3% Rebosis 11,7% 12,5% Redefine 23,7% 17,2% Resilient 69,9% 39,3% SA Corporate 22,4% 22,0% Safari 16,4% - Sycom 13,9% 10,8% Synergy A 15,1% 18,9% Synergy B 4,0% 18,8% Texton 27,1% 20,5% Tower 26,9% - Vukile 18,2% 12,3% *Cumulative growth over period. Total return includes income yield and capital return. Source: S.A. Reit Association (via Grindrod Asset Management)

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51 27 Office rentals Chapter 5: Office rentals Office rentals feeling the pinch John S. Lottering For now, the growth prospects for market rentals of office buildings remain modest. This as an underperforming services sector is likely to continue to place a lid on the demand for office space. Rental growth (%; y-o-y) 4 Rental growth Vacancy rate r=-0,7 Growth in market rentals vs Vacancy rates (National decentralized) Source of data: Rode's Time Series; Sapoa In the first quarter of 2015, market rentals for grade-a office space on a national basis mustered growth of roughly 4%. As seen in the corresponding graph, the general trajectory of the national office vacancy rate has since 2012 been north. The main reason for this was waning demand for office space on the back of lacklustre economic growth. On top of weak demand, Vacancy rate (%) the supply side remained quite adventurous in nodes like Sandton, Cape Town CBD, Century City and Umhlanga Ridge. A ray of hope for the office property market is the current acceleration in output produced by the services sector. Besides being the largest sector in terms of overall contribution to GDP it is also the largest consumer of office space. In the first quarter of 2015, growth in output of this sector heated up to just below 4% (quarter-on-quarter, annualized), marking the third consecutive quarter of accelerating growth. But, the underlying cyclical component of the real (2010 prices) seasonally-adjusted services-sector output is still heading south. The corresponding graph shows the strong inverse relationship between it and national decentralized office vacancy rates. Naturally, this might imply that until this cyclical component reaches a trough and changes direction on the back of a sustained improvement in output a drop in office vacancy rates, and hence stronger growth in market rentals, cannot be expected. Any time series can contain some or all of the following components: Trend (T), Cyclical (C), Seasonal (S) and Irregular (I). These components may be combined in different ways. It is usually assumed that they are multiplied or added, i.e. yt = T x C x S x I or yt = T + C + S + I. Detrending is the mathematical or statistical operation of removing trend from the series in order to accentuate the other components of the time series. In our example, the already seasonally adjusted services-sector output time series was detrended, thereby highlighting the cyclical (C) and irregular (I) components of the time series. Any pattern showing an up-and-down movement around a given trend is identified as a cyclical pattern. Source:

52 28 Office rentals National decentralized office vacancy rate vs Cyclical component of GDP service sector time series r²=0,7 (period: 2002q3 to 2015q1) Smoothed Nominal decentralized grade-a office rentals Vacancy rate (%) Vacancy rate (national dec.) GDP services output cycle Source of data: Stats SA; SAPOA; Rode calculations Detrended GDP service sector time series R/m² (log scale) Pretoria Johannesburg Durban Cape Town From the graph it is also evident that: Between the years 2000 and 2002, output produced by the services sector was in an upswing, while at the same time vacancy rates increased (first shaded area of graph). The explanation for this anomaly was overzealous office development activity between the late 1990s and early years of the following decade that placed strong upward pressure on vacancy rates. The supply-side boom at the time could possibly be linked to the dot-com bubble that climaxed in March 2000 in the USA. In this regard, bear in mind that property supply lags demand by about two years. Over the period 2002 to 2015Q1, the cyclical pattern of services-sector output explains as much as 70% of the change in national decentralized office vacancy rates. Since 2010, output produced by the services sector has been below its longterm (22-year) trend (second shaded area of graph), a sign of the underperformance of this sector. In the rest of the chapter, we again focus on current trends in office rentals. Starting with the decentralized office regions, in the first quarter of 2015 the strongest yearly growth was recorded in Cape Town decentralized. It was followed by Pretoria and Johannesburg decentralized, where rentals were on average up by 5% and 4% respectively. In the reporting quarter, rentals in Durban decentralized (+1%) showed the weakest growth. Source of data: Rode's Time Series A closer look at Johannesburg shows that in most of the city s top decentralized office nodes market rentals contracted somewhat. During the first quarter of 2015, market rentals in Sandton (-3%), Bryanston (-3%), Illovo (-2%), Parktown (- 1%) and Rosebank (-1%) were all slightly lower when compared to a year ago. The implication of declining real rentals (using building costs as a deflator) is that it is becoming progressively less feasible to construct new buildings. R/m² (log scale) R/m² (log scale) Smoothed Nominal Johannesburg decentralized grade-a office rentals Parktown Rosebank Rivonia Sandton CBD Source of data: Rode's Time Series Smoothed Parktown Rosebank Rivonia Sandton CBD Real Johannesburg decentralized grade-a office rentals Source of data: Rode's Time Series

53 29 Office rentals In Randburg Ferndale, rentals were at previous-year levels while rentals in Rivonia (+4%) showed the strongest growth, albeit from a very low base. Office vacancy rates in Rivonia remain sky-high (see Chapter 6) hence there is a possibility of a further cooling in rental growth in this node. R/m² (log scale) Smoothed Nominal Johannesburg decentralized grade-a office rentals Randburg Ferndale Bryanston Illovo Sandton CBD Centurion and Hatfield are also struggling with double-digit vacancy rates (see Chapter 6). Therefore, stronger growth than what is currently being achieved in these nodes should not be expected. R/m² (log scale) Smoothed Source of data: Rode's Time Series Nominal Pretoria decentralized grade-a office rentals Centurion Brooklyn/Waterkloof Hatfield Menlyn Source of data: Rode's Time Series Smoothed Real Johannesburg decentralized grade-a office rentals Smoothed Real Pretoria decentralized grade-a office rentals 120 R/m² (log scale) Randburg Ferndale Bryanston Illovo Sandton CBD R/m² (log scale) Centurion Brooklyn/Waterkloof Hatfield Menlyn Source of data: Rode's Time Series Source of data: Rode's Time Series The general downtrend in real buildingcost deflated rentals in these Johannesburg decentralized office nodes is more evidence of the tough time these nodes have been experiencing in recent years. After having contracted for a number of quarters, rentals in the Durban decentralized office node of Berea were again able to grow. In the reporting quarter, rentals in Berea were up by about 2% when compared to a year ago. Despite a vacancy rate of 11% for the past four quarters, market rentals in the Pretoria decentralized office node of Menlyn have remained resilient. In the reporting quarter, Menlyn showed the strongest growth of 8%. No doubt, this node has become the latest flavour of the month in Pretoria. In Centurion, rental growth of 6% was recorded, while in Brooklyn/Waterkloof and Hatfield rentals were up by 5% and 4% respectively. Like Menlyn, the nodes of R/m² (log scale) Smoothed Nominal Durban decentralized grade-a office rentals Berea La Lucia Ridge Westway Source of data: Rode's Time Series

54 30 Office rentals Still, when considering this node s combined grades A & B vacancy rate of 12% (see Chapter 6), it is still too early to suggest a recovery in rentals here. In the exclusive node of La Lucia / Umhlanga, rentals also showed growth of 2%, while in Westway rentals were up by 2%. Nonetheless, in the reporting quarter rentals in Century City still managed to show growth of 5%. In Tyger Valley, rentals again showed growth of only 1%. 140 Smoothed Real Cape Town decentralized grade-a office rentals Smoothed Real Durban decentralized grade-a office rentals R/m² (log scale) 80 R/m² (log scale) Tyger Valley Claremont Century City 50 Berea La Lucia Ridge Westway Source of data: Rode's Time Series Source of data: Rode's Time Series Pioneer rentals Falling vacancy rates in the Cape Town decentralized office node of Claremont would explain why it was able to again show the strongest growth of 11% in the first quarter of In Century City, the general trend in vacancy rates since 2013 has been north, the result of which has been moderating growth in rentals. In fact, in the reporting quarter rental growth in Century City cooled to 2%. Here vacancy rates are edging slowly north, resulting in a cooling of rental growth Smoothed Nominal Cape Town decentralized grade-a office rentals As a yardstick of potential future growth in market rentals, we compare pioneer rentals to prevailing grade-a market rentals (see Table 5.1). Pioneer rentals often represent leases signed on newly erected buildings, and these then reflect today s building costs rather than market rentals, as developers naturally expect an immediate fair return on their development costs. These rentals are nevertheless an early indicator of the eventual level of grade-a market rentals, once demand catches up with supply. This concludes our section on office rentals. The office-rental tables follow. 80 R/m² (log scale) Tyger Valley Claremont Century City Source of data: Rode's Time Series

55 31 Office rentals Recap: nominal versus real rentals The term nominal refers to money rentals, whereas the term real refers to nominal less inflation. Rode mostly deflates nominal rentals with the Bureau for Economic Research s Building Cost Index (BER BCI) to arrive at real rentals. The rationale for using building costs as deflator is the substitution principle and because building costs can serve as a proxy for the replacement costs. To illustrate, why would you buy a property at R110 when you could have it built (replaced) for R100? When rentals are low relative to replacement costs, the upside potential for rentals is great and vice versa. Thus, high real rentals (relative to previous periods) may be an indication of a market that is vulnerable to a downswing, and low real rentals indicate great upside potential. Grateful thanks to our expert panellists for the information they supply. Codes of the brokers and landlords who contributed to this quarter's survey appear in the table on p. 32. An ex-planation of the codes can be found on p. xii. Table 5.1 Pioneer office rentals Highest gross nominal market rental rate achieved Rands per rentable m², gross leases (excl VAT) During quarter 2015:1 Pioneer Normal grade A Difference % Johannesburg dec % Pretoria dec % Durban dec % Cape Town dec %

56 32 Office rentals Table 5.2 Market rental rates for office buildings Quarter 2015:1 Rands per rentable m² per month, gross leases (excl VAT) Grade A + Grade A Grade B Grade C Broker contributor codes mean mean mean mean Johannesburg CBD - 85,00 65,00 30,00 QU Braamfontein - 87,50 80,25 35,00 QU, REW Sandton CBD 191,25 147,50 108,25 92,50 AR, BM, QU, REW Dunkeld West 135,00 117,50 97,50 86,00 AR, QU Wierda Valley 156,67 121,67 101,83 87,00 AR, BM, QU Randburg Ferndale 84,00 78,00 70,00 64,50 AR, QU Rivonia 112,50 96,50 86,50 80,00 AR, QU Rosebank 167,50 125,00 100,00 88,00 AR, QU Illovo 162,50 127,50 105,00 86,50 AR, QU Illovo Boulevard 145,00 130,00 110,00 92,50 AR, QU Chislehurston 122,50 122,33 106,67 85,00 AR, BM, QU Parktown 111,00 95,00 82,50 77,50 AR, QU Richmond/Milpark 80,00 82,50 73,75 65,25 AR, QU Bedfordview 163,33 123,75 98,33 83,75 AR, BHP, BM, MEA, QU Bruma 142,50 106,67 82,50 78,00 AR, BHP, BM, MEA, QU Meadowbrook Woodmead 128,75 114,00 87,50 82,50 AR, AW, BM, MR, QU Sunninghill 105,00 102,33 85,00 77,00 AR, BM, QU Bryanston/Epsom 137,50 126,33 93,33 86,00 AR, BM, QU Fourways 130,67 118,75 93,50 81,33 AR, AW, BM, QU Houghton 115,00 103,00 90,00 85,50 AR, QU Melrose Arch 191,00 167,50 140,00 - AR, QU Hyde Park 130,00 117,50 97,50 81,65 AR, QU Eastgate/Kramerville 103,00 80,00 62,00 54,00 AR, MR, QU Ormonde 88,50 78,50 67,25 62,50 AR, QU Midrand 122,50 97,13 82,45 73,60 AR, AW, BM, MR, QU Contantia Kloof (Roo depoort) Hendrik Potgieter Corridor 95,00 90,00 79,50 95,00 AR, QU Pretoria CBD Lynnwood Glen Lynnwood Lynnwood Manor Lynnwood Ridge Faerie Glen Val de Grace Menlyn Menlo Park (Brooks St) Brooklyn/Waterkloof Nieuw Muckleneuk Hatfield Centurion Highveld Technopark 125,00 87,50 82,50 67,50 AI, EV 150,00 120,00 92,50 70,00 AI, EV 140,00 115,00 102,50 75,00 AI, EV 145,00 138,00 85,00 70,00 AI, EV 150,00 132,50 95,00 85,00 AI, EV 125,00 117,50 90,00 80,00 AI, EV 110,00 100,00 87,50 70,00 AI, EV 165,00 146,00 130,00 120,00 AI, EV 150,00 136,50 95,00 80,00 AI 160,00 142,50 122,50 110,00 AI, EV 170,00 141,00 120,00 110,00 AI, EV 165,00 127,50 107,50 110,00 AI, EV 140,00 132,50 117,50 105,00 AI, EV 122,50 112,50 88,33 75,00 AI, EV, MAS Sunnyside 125,00 110,00 90,00 82,50 AI, EV For definitions, see Glossary of terms and abbreviations in Annexure 1 or visit

57 33 Office rentals Table 5.2 (continued) Market rental rates for office buildings Quarter 2015:1 Rands per rentable m² per month, gross leases (excl VAT) Grade A + Grade A Grade B Grade C mean mean mean mean Broker contributor codes Arcadia 130,00 102,50 90,00 85,00 AI, EV Murrayfield 110,00 100,00 85,00 75,00 AI Irene - 90, ABA Nelspruit 145,00 122,50 97,50 77,50 HH, PM Polokwane 142,50 110,00 82,50 77,50 ES, MO Bloemfontein CBD 125,00 115,00 90,50 65,00 EK, EQV Westdene 132,50 117,50 85,00 70,00 EK, EQV Durban CBD 90,00 75,00 55,00 45,00 MW, QP Durban Berea - 105,00 90,00 80,00 MW, QP Essex Terrace 100,00 95,00 90,00 75,00 MW, QP Westway 140,00 120, MW, QP La Lucia Ridge 147,50 127,50 105,00 - MW, QP Westville 130,00 107,50 95,00 82,50 MW, QP Pinetown 85,00 80,00 60,00 45,00 QP Hillcrest-Kloof 125,00 110,00 85,00 75,00 QP (Upper Highway) Port Elizabeth CBD Greenacres : Parks 135,00 95,00 80,00 60,00 QV Greenacres: Single 135,00 95,00 80,00 60,00 QV Walmer Park 1, 2 & 3-100,00 80,00 60,00 QV South End - 100,00 80,00 60,00 QV Humewood 140,00 110,00 85,00 65,00 QV Cape Road 135,00 100,00 80,00 65,00 QV East London Southernwood Berea/Vincent Cape Town CBD 156,67 121,25 98,33 67,50 FLP, GB, HP, ZB Sea Point 132,50 110,00 87,50 60,00 GB, ZB V&A Portswood Ridge 160,00 142,50 110,00 - FLP, ZB Granger Bay 162,50 150,00 110,00 - FLP, ZB Salt River 110,00 93,33 85,00 62,50 DN, GB, ZB Woodstock 115,00 95,00 82,50 70,00 GB, ZB Observatory 107,50 90,00 80,00 65,00 DN, GB, ZB Mowbray 95,00 87,50 80,00 65,00 GB, ZB Kenilworth (Racecourse) 108,75 94,67 95,00 90,00 GB, HP, ZB Rondebosch/Newlands 138,33 110,00 100,00 95,00 FLP, GB, ZB Wynberg 100,00 95,00 75,00 60,00 FLP, GB, ZB Westlake 115,00 106,00 100,00 95,00 FLP, GB, HP, PL, ZB Tokai 126,25 105,00 100,00 95,00 FLP, GB, HP, ZB Claremont Lower* - 70,00 65,00 65,00 ZB Claremont Upper 138,75 123,33 92,50 95,00 FLP, GB, PL, ZB Hout Bay 105,00 105,00 90,00 77,50 FLP, ZB Noordhoek (Sun Valley) 105,00 100,00 90,00 85,00 ZB Pinelands 110,00 115,00 95,00 95,00 FLP, HP, ZB Athlone 100,00 95,00 90,00 85,00 ZB Milnerton 105,00 100,00 82,50 75,00 GB, ZB Panorama 105,00 100,00 90,00 85,00 ZB Table View / Parklands 100,00 102,50 82,50 75,00 GB, PL, ZB For definitions, see Glossary of terms and abbreviations in Annexure 1 or visit

58 34 Office rentals Table 5.2 (continued) Market rental rates for office buildings Quarter 2015:1 Rands per rentable m² per month, gross leases (excl VAT) Grade A + Grade A Grade B Grade C mean mean mean mean Broker contributor codes Century City 158,75 124,80 98,33 85,00 CA, GB, HP, PL, ZB Maitland 95,00 90,00 85,00 60,00 GB, ZB Goodwood (N1 City) 113,33 101,67 86,67 87,50 GB, OJ, ZB Tygerberg Hills 135,00 123,75 102,40 81,67 CA, GB, GR, OJ, ZB Bellville CBD 106,67 86,25 75,00 61,00 DN, GB, GR, OJ, ZB Tyger Valley area 134,00 112,86 99,00 80,00 CA, DN, GB, GR, OJ, PN, ZB Durbanville 120,00 115,00 96,67 82,50 GR, OJ, ZB Airport 120,00 115,00 110,00 - ZB Kuils River 100,00 95,00 90,00 - ZB Somerset West Town Somerset West Mall area Strand Gordon s Bay George * Claremont Lower: east of Main Road For definitions, see Glossary of terms and abbreviations in Annexure 1 or visit

59 35 Office rentals Table 5.3 Standard deviation of market rental rates for office buildings Quarter 2015:1 Grade A + Grade A Grade B Grade C Johannesburg CBD Braamfontein - 3,54 7,42 - Sandton CBD 8,54 6,45 9,60 3,54 Dunkeld West 7,07 3,54 3,54 1,41 Wierda Valley 22,55 16,07 7,42 4,24 Randburg Ferndale 1,41 4,24 0,00 0,71 Rivonia 3,54 2,12 2,12 0,00 Rosebank 10,61 7,07 0,00 2,83 Illovo 17,68 10,61 7,07 2,12 Illovo Boulevard 7,07 7,07 0,00 3,54 Chislehurston 3,54 15,70 7,64 0,00 Parktown 8,49 0,00 3,54 3,54 Richmond/Milpark 0,00 2,83 0,00 0,71 Bedfordview 2,89 18,87 14,43 10,31 Bruma 3,54 7,64 3,54 10,37 Meadowbrook Woodmead 9,46 12,94 6,45 2,89 Sunninghill 7,07 15,70 0,00 2,65 Bryanston / Epsom Downs 10,61 20,50 7,64 1,41 Fourways 7,51 20,97 2,38 3,21 Houghton 0,00 2,83 0,00 0,71 Melrose Arch 12,73 24, Hyde Park 7,07 3,54 3,54 4,74 Eastgate/Kramerville - 0,00 7,21 1,41 Ormonde - 2,12 3,18 3,54 Midrand 12,58 5,75 7,58 9,61 Hendrik Potgieter Corridor 7,07-0,71 1,06 Pretoria CBD 10,61 10,61 10,61 Lynnwood Glen - 14,14 3,54 - Lynnwood - - 3,54 - Lynnwood Manor - 39, Lynnwood Ridge - 3, Faerie Glen - 3, Val de Grace ,68 - Menlyn 7,07 8, Menlo Park (Brooks St) - 30, Brooklyn/Waterkloof - 10,61 3,54 - Nieuw Muckleneuk - 12,73 0,00 - Hatfield - 10,61 17,68 - Centurion - 3,54 3,54 - Highveld Technopark 3,54 3,54 2,89 - Sunnyside ,54 Arcadia - 3,54 0,00 0,00 Murrayfield Nelspruit CBD Polokwane Bloemfontein CBD - 0,00 7,78 0,00 Westdene 10,61 3,54 0,00 0,00 Durban CBD - 7,07 0,00 - Durban Berea - 28,28 21,21 21,21 For definitions, see Glossary of terms and abbreviations in Annexure 1 or visit

60 36 Office rentals Table 5.3 (continued) Standard deviation of market rental rates for office buildings Quarter 2015:1 Grade A + Grade A Grade B Grade C Essex Terrace ,14 14,14 Westway 14, La Lucia Ridge 24,75 10,61 21,21 - Westville - 10,61 7,07 10,61 Pinetown Hillcrest-Kloof (Upper Highway) Port Elizabeth CBD Greenacres : Parks Greenacres: Single Walmer Park 1, 2 & South End Humewood Cape Road Cape Town CBD 10,41 13,15 12,58 3,54 Sea Point 10,61 21,21 17,68 - V&A Portswood Ridge 0,00 24, Granger Bay 3,54 14, Salt River 0,00 11,55 13,23 10,61 Woodstock 7,07 7,07 3,54 14,14 Observatory 17,68 10,00 8,66 13,23 Mowbray 21,21 17,68 14,14 - Kenilworth (Racecourse) 2,50 8, Rondebosch/Newlands 22,55 7, Wynberg ,23 35,36 Westlake 5,00 6, Tokai 12,50 14, Claremont Lower* Claremont Upper 15,48 15,28 10,61 - Hout Bay - 7,07 0,00 10,61 Noordhoek (Sun Valley) Pinelands - 10,00 7,07 - Athlone Milnerton - 0,00 10,61 14,14 Panorama Table View / Parklands 7,07 3,54 10,61 14,14 Century City 22,13 11,30 7,64 - Maitland 7, ,28 Goodwood (N1 City) 25,17 16,07 12,58 10,61 Tygerberg Hills 12,91 18,87 12,60 10,41 Bellville CBD 5,77 14,93 17,68 19,17 Tyger Valley area 11,40 12,20 6,52 4,08 Durbanville 0,00 5,00 11,55 3,54 Airport Kuils River Somerset West Town Somerset West Mall area Strand Gordon s Bay George *Claremont Lower: east of Main Road For definitions, see Glossary of terms and abbreviations in Annexure 1 or visit

61 37 Office rentals Table 5.4 Typical rent-free period in months Average periods on offer in quarter 2015:1 Mean SD Mean SD Johannesburg CBD 2,0 1,4 Durban CBD 2,5 0,7 Braamfontein 1,3 0,6 Durban Berea 1,0 - Sandton CBD 0,8 0,5 Essex Terrace 0,5 - Dunkeld West 1,0 - Westway 0,5 - Wierda Valley 1,0 0,0 La Lucia Ridge 1,0 - Randburg Ferndale 1,0 - Westville 0,5 - Rivonia 1,0 - Pinetown 1,0 - Rosebank 1,0 - Hillcrest-Kloof-Upper Highway 0,5 - Illovo 1,0 - Port Elizabeth - - Illovo Boulevard 1,0 - Port Elizabeth dec. - - Chislehurston 1,0 0,0 East London - - Parktown 1,0 - East London dec. - - Richmond/Milpark 1,0 0,7 Cape Town CBD 1,0 0,4 Bedfordview 1,0 0,0 Sea Point - 0,0 Bruma 1,0 0,0 V&A Portswood Ridge 1,0 0,0 Meadowbrook 1,0 - Granger Bay 1,0 0,0 Woodmead 1,0 0,0 Salt River - 0,0 Sunninghill 1,0 0,0 Woodstock - 0,0 Bryanston/Epsom 1,0 0,0 Observatory - 0,0 Fourways 1,3 0,5 Mowbray - 0,0 Houghton 1,5 0,7 Kenilworth (Racecourse) 1,0 0,4 Melrose Arch 0,0 0,7 Westlake 1,0 0,0 Hyde Park 0,5 0,7 Tokai - 0,0 Eastgate/Kramerville 1,3 0,6 Claremont Lower* 1,0 0,4 Ormonde 1,5 0,7 Claremont Upper 1,0 0,5 Midrand 1,2 0,4 Hout Bay - 0,0 Hendrik Potgieter Corr. 1,5 0,7 Noordhoek (Sun Valley) - 0,4 Pretoria CBD 2,0 - Pinelands 1,0 0,0 Lynnwood Glen 3,0 - Athlone 1,0 0,0 Lynnwood 3,0 - Milnerton - 0,5 Lynnwood Manor 3,0 - Panorama - 0,0 Lynnwood Ridge 3,0 - Rondebosch/Newlands 1,0 0,0 Faerie Glen 3,0 - Wynberg 1,0 0,0 Val de Grace 3,0 - Table View / Parklands 1,0 0,0 Menlyn 2,0 - Century City 1,0 0,5 Menlo Park (Brooks St) 2,0 - Maitland - 0,0 Brooklyn/Waterkloof 3,0 - Goodwood (N1 City) 1,3 0,0 Nieuw Muckleneuk 3,0 - Tygerberg Hills / Plattekloof 1,5 0,0 Hatfield 3,0 - Bellville CBD 1,0 0,0 Centurion 2,0 - Tyger Valley area 1,0 0,4 Highveld Technopark 1,8 0,4 Durbanville 1,0 0,0 Sunnyside 3,0 - Airport - 0,0 Arcadia 3,0 - Kuils River 1,0 0,0 Murrayfield 3,0 - Somerset West Town - - Nelspruit CBD - - Somerset West Mall area - - Polokwane - - Strand - - Bloemfontein CBD 1,0 - Gordon s Bay - - Westdene 1,0 - George - - *Claremont Lower: east of Main Road SD: See Glossary of terms and abbreviations in Annexure 1.

62 38 Office rentals Table 5.5 Market parking rentals Monthly parking rands per bay per month (excl. VAT) As in quarter 2015:1 Covered reserved parking Gr A + Gr A Gr B Gr C Under shade net Openair parking Johannesburg CBD Braamfontein Sandton CBD Dunkeld West Wierda Valley Randburg Ferndale Rivonia Rosebank Illovo Illovo Boulevard Chislehurston Parktown Richmond/Milpark Bedfordview Bruma Meadowbrook Woodmead Sunninghill Bryanston / Epsom Downs Fourways Houghton Melrose Arch Hyde Park Eastgate/Kramerville Ormonde Midrand Hendrik Potgieter Corridor Pretoria CBD Lynnwood Glen Lynnwood Lynnwood Manor Lynnwood Ridge Faerie Glen Val de Grace Menlyn Menlo Park (Brooks St) Brooklyn/Waterkloof Nieuw Muckleneuk Hatfield Centurion Highveld Technopark Sunnyside Arcadia Murrayfield

63 39 Office rentals Table 5.5 (continued) Market parking rentals Monthly parking rands per bay per month (excl. VAT) As in quarter 2015:1 Covered reserved parking Under shade Gr A + Gr A Gr B Gr C net Openair parking Nelspruit Polokwane Bloemfontein CBD Westdene Durban CBD Durban Berea Essex Terrace Westway La Lucia Ridge Westville Pinetown Hillcrest-Kloof (Upper Highway) Port Elizabeth CBD Greenacres : Parks Greenacres: Single Walmer Park 1, 2 & South End Humewood Cape Road Cape Town CBD Sea Point V&A Portswood Ridge Granger Bay Salt River Woodstock Observatory Mowbray Kenilworth (Racecourse) Rondebosch/Newlands Wynberg Westlake Tokai Claremont Lower* Claremont Upper Hout Bay Noordhoek (Sun Valley) Pinelands Athlone Milnerton Panorama Table View / Parklands Century City Maitland Goodwood (N1 City) Tygerberg Hills Bellville CBD

64 40 Office rentals Table 5.5 (continued) Market parking rentals Monthly parking rands per bay per month (excl. VAT) As in quarter 2015:1 Covered reserved parking Under shade Gr A + Gr A Gr B Gr C net Openair parking Tyger Valley area Durbanville Airport Kuils River Somerset West Town Somerset West Mall area Strand Gordon s Bay George *Claremont Lower: east of Main Road

65 41 Office rentals Table 5.6 Office rental escalation rates on new leases (%) Average escalation rate on net rentals for quarter 2015:1 Mean Johannesburg CBD 9,0 Westdene 8,0 Braamfontein 9,0 Durban CBD 8,3 Sandton CBD 8,6 Durban Berea 8,3 Dunkeld West 9,0 Essex Terrace 8,3 Wierda Valley 8,8 Westway 8,5 Randburg Ferndale 9,0 La Lucia Ridge 8,3 Rivonia 9,0 Westville 8,5 Rosebank 9,0 Pinetown 8,5 Illovo 9,0 Hillcrest-Kloof (Upper Highway) 9,0 Illovo Boulevard 9,0 Port Elizabeth 8,0 Chislehurston 6,2 Port Elizabeth dec. 8,0 Parktown 9,0 Cape Town CBD 8,5 Richmond/Milpark 9,0 Sea Point - Bedfordview 9,0 V&A Portswood Ridge 9,0 Bruma 9,0 Granger Bay 9,3 Meadowbrook 9,0 Salt River - Woodmead 8,8 Woodstock - Sunninghill 9,0 Observatory - Bryanston / Epsom Downs 9,0 Mowbray - Fourways 8,8 Kenilworth (Racecourse) 8,5 Houghton 9,0 Rondebosch/Newlands 9,0 Melrose Arch 9,0 Wynberg 8,5 Hyde Park 9,0 Westlake 7,0 Eastgate/Kramerville 9,0 Tokai - Ormonde 9,0 Claremont Lower* 8,0 Midrand 8,8 Claremont Upper 9,0 Hendrik Potgieter 9,0 Hout Bay - Pretoria CBD 8,5 Noordhoek (Sun Valley) - Lynnwood Glen 9,0 Pinelands 9,0 Lynnwood 9,0 Athlone 8,0 Lynnwood Manor 9,0 Milnerton - Lynnwood Ridge 9,0 Panorama - Faerie Glen 8,5 Table View / Parklands 9,0 Val de Grace 9,0 Century City 9,0 Menlyn 10,0 Maitland - Menlo Park (Brooks St) 9,0 Goodwood (N1 City) 8,3 Brooklyn/Waterkloof 9,0 Tygerberg Hills/Plattekloof 8,0 Nieuw Muckleneuk 9,0 Bellville CBD 8,5 Hatfield 8,0 Tyger Valley area 8,5 Centurion 8,0 Durbanville 8,5 Highveld Technopark 9,0 Airport - Sunnyside 10,0 Kuils River - Arcadia 9,0 Somerset West Town - Murrayfield 9,0 Somerset West Mall area - Nelspruit 8,0 Strand - Polokwane - Gordon s Bay - Bloemfontein CBD 8,0 George - *Claremont Lower: east of Main Road Mean

66 42 Office rentals Table 5.7 Escalation rates on operating costs (%) Node 2015:1 Node 2015:1 Johannesburg CBD 9,5 Durban CBD 8,5 Braamfontein 9,4 Durban Berea 8,5 Sandton CBD 9,3 Essex Terrace 8,5 Dunkeld West 9,5 Westway 9,0 Wierda Valley 9,3 La Lucia 8,5 Randburg Ferndale 9,5 Westville 9,0 Rivonia 9,5 Pinetown 8,5 Rosebank 9,5 Hillcrest-Kloof (Upper Highway) 9,0 Illovo 9,5 Empangeni - Illovo Boulevard 9,5 Richards Bay - Chislehurston 9,3 Port Elizabeth CBD - Parktown 9,5 Port Elizabeth dec - Richmond/Milpark 9,5 Cape Town CBD 9,0 Bedfordview 9,3 Sea Point - Bruma 9,3 V&A Portswood Ridge 9,0 Meadowbrook 9,5 Granger Bay 9,0 Woodmead 9,0 Salt River - Sunninghill 9,3 Woodstock - Bryanston/Epsom 9,3 Observatory - Fourways 9,0 Mowbray - Houghton 9,3 Kenilworth (Racecourse) 9,0 Melrose Arch 9,5 Westlake 8,7 Hyde Park 9,5 Tokai - Eastgate/Kramerville 9,5 Claremont Lower* 8,0 Ormonde 9,5 Claremont Upper 9,0 Midrand 9,0 Hout Bay - Hendrik Potgieter Corridor 9,5 Noordhoek (Sun Valley) - Pretoria CBD 10,0 Pinelands 9,0 Lynnwood Glen 10,0 Athlone 8,0 Lynnwood 10,0 Milnerton - Lynnwood Manor 10,0 Panorama - Lynnwood Ridge 10,0 Rondebosch/Newlands 9,0 Faerie Glen 10,0 Wynberg 7,0 Val de Grace 10,0 Table View / Parklands 9,0 Menlyn 10,0 Century City 9,5 Menlo Park (Brooks St) 10,0 Maitland - Brooklyn/Waterkloof 10,0 Goodwood (N1 City) 8,5 Nieuw Muckleneuk 10,0 Tygerberg Hills 8,0 Hatfield 10,0 Bellville CBD 9,0 Centurion 9,0 Tyger Valley area 9,0 Highveld Technopark 10,0 Durbanville - Sunnyside 10,0 Airport - Arcadia 11,0 Kuils River - Murrayfield 10,0 Somerset West Town - Nelspruit 8,0 Somerset West Mall area - Polokwane - Strand - Bloemfontein 9,0 Gordon's Bay - Westdene 10,0 George - *Claremont Lower: east of Main Road

67 43 Office demand and vacancies Chapter 6: Office demand and vacancies National office vacancy rate edging closer to historic high John S. Lottering Nationally, office vacancies again edged up slightly in the first quarter of 2015, and are now comfortably above their long-term average. 12 National decentralized office vacancy rate Combined grade-a & -B 2003Q3=11,5% 2015Q1=9,8% At least output produced by the services sector is accelerating somewhat. In the first quarter of 2015, growth in output of this sector heated up to just below 4% (quarter-on-quarter, annualized), marking the third consecutive quarter of accelerating growth. The graph which follows shows how, since the first quarter of 2013, growth in annualized quarter-on-quarter services sector output has averaged roughly 3%. However, over the same period the demand for office space has contracted. Evidently, the historic positive relationship between growth in service sector output and growth in office demand has now broken down. Weak business sentiment and poor growth in employment might, of course, explain why demand for office space has been shrinking. 10 Vacancy rate (%) Smoothed Growth in national dec. office demand (q-o-q; annualized) vs Growth in GDP services sector (q-o-q; annualized) r²=0, National vacancy rate 17-year ave. vacancy rate Source of data: SAPOA; Rode calculations Growth (%; q-o-q; annualized) In the reporting quarter, the combined national grades A and B vacancy rate stood at 10%, three percentage points above its 17- year average of 7%. Besides being above its long-term average, the vacancy rate is also moving uncomfortably close to its historic high of roughly 11% last reached in Vacancy (%) Office demand GDP Services sector Source of data: Stats SA; SAPOA; Rode calculations A look at vacancy rates across the regions shows that the upward trend in the national vacancy rate was primarily due to rising vacancies in Johannesburg and Pretoria decentralized. Decentralized office vacancies Grade A+, A and B combined Pretoria Johannesburg Durban Cape Town Source of data: Rode's Time Series; Sapoa

68 44 Office demand and vacancies This was on the back of a combination of waning demand and overenthusiastic development activity in these regions. The vacancy-rate trend in Johannesburg and Pretoria decentralized is contrasted by Cape Town and Durban decentralized. In these regions, vacancy rates have in recent years been able to edge south. 20 Decentralized Johannesburg office vacancies Grade A+, A and B combined In most of the Pretoria decentralized office nodes barring Brooklyn vacancy rates either stayed at the previous-quarter levels or decreased slightly. Despite improving somewhat in recent quarters, the popular Pretoria decentralized office node of Centurion, with its vacancy rate of 14%, remains one of the least rented-up nodes. Similar to Midrand, developers also flocked to this node because of it having a Gautrain station. Vacancy (%) Decentralized Pretoria office vacancies Grade A+, A and B combined Brooklyn Pretoria Eastern Suburbs Centurion Hatfield/ Hillcrest Bryanston Illovo Midrand Randburg Vacancy (%) Source of data: Rode's Time Series; Sapoa 4 As for what s happening within Johannesburg decentralized, during the quarter under review the vacancy rate in Illovo showed the biggest jump to 14% from 10% in the previous quarter. Also noteworthy is how vacancy rates in Midrand have trended north since Here, the vacancy rate has increased from 4% in the fourth quarter of 2012 to 9% currently. Of course, this might still be the side-effects of overzealous office developments as a result of this node having a Gautrain station. Elsewhere in Johannesburg decentralized, vacancy rates ranged from as low as 6% in Bryanston to as high as 20% in Rivonia. Rivonia s sorry tale can best be explained by its ageing stock. 25 Decentralized Johannesburg office vacancies Grade A+, A and B combined Source of data: Rode's Time Series; Sapoa Vacancy rates in the Durban decentralized office nodes of La Lucia / Umhlanga, Westville and Berea remained at their previous-quarter levels. The exclusive office node of La Lucia / Umhlanga is practically fully let with a vacancy rate of 3%. This is in contrast to Berea, where the vacancy rate stood at 12%. It is evident that Berea has fallen out of favour since Presumably this can be ascribed to decisionmakers homes having migrated to the new north Decentralized Cape Town office vacancies Grade A+, A and B combined Pinelands Rondebosch/Newlands Claremont Century City V&A Waterfront 20 Vacancy (%) Vacancy (%) Sandton & environs Rosebank Parktown Rivonia Source of data: Rode's Time Series; Sapoa Source of data: Rode's Time Series; Sapoa

69 45 Office demand and vacancies During the reporting quarter, the Cape Town decentralized office nodes of the V&A Waterfront, Pinelands and Claremont were also basically fully occupied, with vacancy rates of 2% to 3%. In Rondebosch/Newlands and Century City, they were slightly higher at 7%. In Newton Park, vacancy rates increased moderately from about 9% to 11%, while in Walmer/Fairview, rates remained at exactly their previous quarter level of 23%. 50 Decentralized Port Elizabeth office vacancies Grade A+, A and B combined Greenacres Newton Park Walmer/Fairview Capitol Commercial Properties surveys the Tyger Valley area (north of the N1). According to its figures (see ), the vacancy rates for grades A +, A and B properties as in May 2015 were 8%, 6% and 6% respectively. Vacancy (%) III IV I II III IV I II III IV I II III IV I II III IV I II III IV I During the reporting quarter, vacancy rates in the Port Elizabeth decentralized office node of Greenacres were again lower than their previous-quarter level, falling by as much as 3 percentage points to 16%. Source of data: Rode's Time Series; Sapoa This chapter is concluded by the officevacancy factors and office-stock tables sourced from Sapoa.

70 46 Office demand and vacancies Table 6.1 Sapoa office vacancy factors(%) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Bedfordview Grade A Grade A 10,9 9,4 8,9 5,1 2,3 Grade B 16,3 14,7 16,0 16,0 16,0 Total 12,8 11,2 11,3 8,7 6,9 Braamfontein Grade A Grade A 17,7 16,1 17,1 19,4 20,1 Grade B 14,1 13,4 6,7 5,7 3,1 Total 16,2 15,0 13,1 14,1 12,8 Bryanston / Epsom Downs Grade A Grade A 6,9 7,7 7,5 7,4 6,0 Grade B 3,1 5,9 5,9 2,6 4,7 Total 6,7 7,6 7,4 7,1 5,9 Bruma Grade A Grade A 5,2 5,2 3,3 3,3 3,3 Grade B 31,1 31,9 29,6 18,2 42,6 Total 20,9 21,3 20,1 13,1 29,2 CBD Johannesburg Grade A + 0,0 0, Grade A 1,0 0,0 2,9 2,9 6,4 Grade B 18,6 21,4 20,8 20,4 20,9 Total 11,7 13,5 13,5 13,3 14,8 Constantia Kloof Basin Grade A Grade A 4,6 11,7 11,7 4,7 4,6 Grade B 11,4 11,9 12,5 12,1 15,5 Total 5,1 11,7 11,8 5,2 5,3 Fourways Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 15,6 14,6 18,8 16,3 16,7 Grade B 0,0 0,0 0,0 0,0 0,0 Total 14,0 13,1 16,9 14,6 14,9 Houghton/Killarney Grade A Grade A 3,8 4,5 6,9 11,2 9,7 Grade B 0,0-100,0 100,0 100,0 Total 3,7 4,5 8,8 13,0 15,3 Hyde Park /Dunkeld Grade A Grade A 20,4 22,9 17,7 26,9 14,3 Grade B 6,7 5,8 6,7 6,4 5,0 Total 11,6 11,2 10,2 13,7 8,3 Source of data: Sapoa

71 47 Office demand and vacancies Illovo Table 6.1 (continued) Sapoa office vacancy factors (%) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 1,3 10,6 11,2 10,7 17,3 Grade B 7,5 5,7 4,4 5,8 5,2 Total 2,0 9,4 9,7 9,5 14,1 Melrose/Waverley Grade A + 1,4 4,7 4,6 8,9 6,3 Grade A 3,1 3,5 2,4 0,6 2,7 Grade B 3,0 3,0 3,0 2,6 2,6 Total 2,0 4,2 4,0 6,6 5,2 Midrand Grade A + 1,8 1,8 1,8 1,7 0,4 Grade A 6,3 6,3 6,3 12,6 13,5 Grade B 9,9 9,9 9,9 7,4 10,9 Total 6,5 6,5 6,5 7,5 8,8 Milpark Grade A Grade A 0,0 0,0 0,0 0,0 0,2 Grade B 5,3 3,2 3,7 3,6 4,7 Total 4,6 2,8 3,2 3,1 4,1 Morningside Grade A Grade A 1,7 12,1 6,5 4,4 11,7 Grade B 40,9 40,9 13,1 19,0 19,1 Total 7,7 4,9 4,2 13,2 Parktown Grade A Grade A 1,2 4,8 4,7 2,6 2,7 Grade B 12,0 11,7 11,9 11,1 9,8 Total 8,4 9,3 9,2 8,2 7,4 Randburg Grade A Grade A 8,7 8,7 7,4 6,3 7,0 Grade B 10,1 10,1 12,8 12,2 13,5 Total 9,9 9,9 12,1 11,4 12,6 Rivonia Grade A + Grade A 18,3 15,3 15,2 15,1 15,2 Grade B 20,1 21,8 21,7 21,7 21,7 Total 19,6 19,9 19,7 19,7 19,7 Rosebank Grade A ,0 0,0 0,0 Grade A 2,8 4,0 9,1 10,9 9,0 Grade B 2,8 5,5 11,7 11,4 8,8 Total 2,8 4,6 8,6 9,2 7,3 Sandton & Environs Grade A + 13,6 12,7 7,5 6,7 7,7 Grade A 17,1 15,8 20,7 16,6 16,8 Grade B 5,0 5,0 7,4 7,9 7,9 Total 14,2 13,2 15,0 12,0 12,28 Source of data: Sapoa

72 48 Office demand and vacancies Sunninghill Table 6.1 (continued) Sapoa office vacancy factors (%) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Grade A Grade A 11,3 12,2 12,0 11,3 9,9 Grade B - - 1,9 1,9 1,9 Total 11,3 12,2 8,3 7,9 7,0 Woodmead Grade A Grade A 4,8 4,5 10,1 9,1 91,3 Grade B 28,4 28,4 28,4 28,4 28,4 Total 5,9 5,6 11,0 10,0 71,9 Cresta/Blackheath to Randpark Grade A + 0,0 0,0 0,0-0,0 Grade A 2,7 2,7 2,7-5,5 Grade B 19,8 14,5 12,2-34,8 Total 5,2 4,0 3,5-10,3 Greenstone/Edenvale/ Modderfontein Grade A ,0-0,0 Grade A 4,9 2,2 0,0-3,2 Grade B 46,0 46, Total 15,9 14,0 2,2-2,2 Newtown Grade A Grade A 0,0 0,0 0,0-0.0 Grade B 42,5 43,7 43, Total 19,2 19,7 18,7-26,4 Cape Town Bellville (incl. Tyger V) Grade A Grade A 7,6 6,6 5,7 5,1 6,4 Grade B 10,2 11,1 11,1 12,5 11,5 Total 8,4 8,0 7,4 7,4 8,0 CBD Cape Town Grade A ,5 36,5 36,5 34,6 Grade A 6,7 7,2 10,0 10,6 9,9 Grade B 11,8 11,9 10,2 10,4 11,0 Total 10,1 11,8 11,7 12,0 12,0 Century City Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 7,5 6,0 6,6 7,9 6,5 Grade B 2,9 0,2 0,8 5,5 13,7 Total 6,5 5,0 5,6 7,1 7,1 Claremont Grade A Grade A 16,8 1,7 1,7 1,1 0,8 Grade B 4,9 14,1 12,1 12,1 5,6 Total 10,9 8,2 7,1 6,8 3,3 Source of data: Sapoa

73 49 Office demand and vacancies Table 6.1 (continued) Sapoa Office vacancy factors (%) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Pinelands Grade A Grade A 1,3 1,3 1,6 1,6 1,6 Grade B 13,9 13,9 12,0 6,4 4,1 Total 3,2 3,2 3,2 2,3 2,0 Rondebosch/Newlands Grade A Grade A 10,0 9,2 8,2 7,8 7,6 Grade B 1,9 1,3 2,5 4,2 5,5 Total 7,7 7,0 6,6 6,8 7,0 V&A Waterfront Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 1,8 1,5 0,9 2,1 3,0 Grade B 0,0 0,0 0,0 0,0 0,0 Total 1,3 1,1 0,6 1,5 2,2 Berea Grade A + Durban Grade A 7,9 8,2 7,3 5,7 5,5 Grade B 20,0 25,7 25,7 25,7 25,9 Total 13,4 16,1 15,7 11,7 11,7 Ballito Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 14,7 15,0 12,4 14,4 14,4 Grade B 7,3 7,0 4,2 3,7 3,7 Total 11,0 11,1 8,7 9,6 9,6 Hillcrest/Gillits Grade A + 5,2 7,6 9,2 6,8 - Grade A 0,3 0,3 5,7 4,6 12,6 Grade B 3,7 3,7 2,7 8,0 - Total 2,0 2,5 5,5 5,6 12,6 CBD Durban Grade A Grade A 20,1 20,1 20,1 20,1 21,3 Grade B 12,8 12,8 8,5 8,5 43,3 Total 16,0 16,0 14,0 14,0 32,8 Umhlanga / La Lucia Grade A + 2,1 2,1 2,1 2,1 11,0 Grade A 3,0 3,0 3,0 3,0 2,8 Grade B 3,3 3,3 3,7 3,7 4,7 Total 3,0 3,0 3,0 3,0 3,1 Westville Grade A Grade A 4,2 6,4 6,7 5,4 4,4 Grade B 4,4 5,6 4,9 5,8 6,7 Total 4,3 6,0 5,7 5,7 6,1 Source of data: Sapoa

74 50 Office demand and vacancies Table 6.1 (continued) Sapoa office vacancy factors (%) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Arcadia Grade A Grade A 6,0 4,8 5,4 10,3 10,9 Grade B 3,6 6,5 6,5 7,7 7,7 Total 5,1 5,4 4,0 9,3 9,7 Brooklyn Grade A Grade A 7,3 9,9 9,2 7,4 7,8 Grade B 4,6 4,2 5,8 5,8 8,6 Total 6,7 8,2 8,3 7,0 8,0 CBD Pretoria Grade A Grade A 1,8 1,3 1,3 1,3 1,3 Grade B 13,7 17,8 19,7 19,7 19,7 Total 10,8 12,4 9,0 13,6 13,6 Centurion Grade A Grade A 7,6 10,3 9,8 9,4 9,0 Grade B 21,9 21,3 19,8 19,8 19,2 Total 15,0 16,2 15,1 14,9 14,0 Hatfield/Hillcrest Grade A Grade A 8,5 11,1 9,9 9,9 9,4 Grade B 9,5 13,3 12,7 15,1 14,5 Total 9,0 12,3 11,5 12,9 12,3 Highveld Technopark Grade A Grade A 14,6 8,4 21,5 21,6 - Grade B 12,2 11,7 12,0 11,0 - Total 13,9 9,3 19,0 19,0 - Menlyn Grade A Grade A 6,7 10,8 11,0 11,2 11,2 Grade B 7,4 9,1 7,5 9,0 9,0 Total 6,9 10,3 9,7 10,5 10,4 Pretoria Eastern Suburbs Grade A Grade A 12,0 10,3 8,8 7,7 6,2 Grade B 12,1 12,1 12,0 12,2 13,5 Total 12,0 11,1 10,3 9,8 9,6 Lynnwood Grade A + 0,0 0,0 0,0 11,3 0,0 Grade A 7,7 9,2 9,2 9,2 0,0 Grade B 5,1 4,5 5,4 6,7 0,0 Total 5,3 5,5 5,6 8,5 0,0 Source of data: Sapoa

75 51 Office demand and vacancies Greenacres Table 6.1 (continued) Sapoa office vacancy factors (%) Grades A+, A & B March 2014 June 2014 Port Elizabeth September 2014 December 2014 March 2015 Grade A + 0,0 0,0 0,0 0,0 0,0 Grade A 1,7 1,7 3,1 3,1 3,1 Grade B 18,1 18,8 23,8 22,4 19,1 Total 14,7 15,3 19,3 18,3 15,8 Newton Park Grade A + 4,8 4,8 4,8 4,8 6,6 Grade A 0,0 0,0 0,0 0,0 0,0 Grade B 33,5 33,5 33,5 33,5 33,5 Total 9,4 9,4 9,4 9,4 10,8 Central / Park Drive Grade A Grade A Grade B 30,3 31,1 30,3 30,3 0,0 Total 30,3 31,1 30,3 30,3 0,0 Walmer/Fairview Grade A Grade A 25,5 25,5 25,5 25,5 25,5 Grade B 13,5 24,7 13,2 12,1 12,1 Total 23,0 25,4 22,9 22,6 22,6 Johannesburg central Grade A + 0,0 0, Grade A 5,9 5,0 6,7 7,3 10,1 Grade B 17,9 20,2 18,9 18,4 17,9 Total 12,6 13,8 13,4 13,4 14,4 Johannesburg decentralized Grade A + 7,8 7,9 4,6 5,3 5,3 Grade A 8,4 9,3 11,0 9,9 10,9 Grade B 10,7 10,8 11,3 9,8 10,7 Total 9,0 9,6 10,3 9,3 10,0 Pretoria decentralized Grade A + 0,0 0,0 0,0 11,3 0,0 Grade A 9,4 9,3 12,3 12,7 8,6 Grade B 11,3 12,0 11,7 12,4 12,0 Total 10,1 10,3 11,3 12,6 9,9 Durban decentralized Grade A + 2,8 3,7 4,4 3,4 6,2 Grade A 4,2 4,7 4,7 4,2 4,0 Grade B 7,2 8,9 8,5 8,6 9,4 Total 5,0 6,0 5,8 5,6 5,8 Cape Town decentralized Grade A + 1,5 0,0 0,0 0,0 0,0 Grade A 6,6 5,0 4,8 4,9 5,1 Grade B 7,8 9,6 9,2 8,1 9,3 Total 6,8 6,0 5,8 5,5 6,0 Source of data: Sapoa

76 52 Office demand and vacancies National decentralized Table 6.1 (continued) Sapoa office vacancy factors (%) Grades A+, A & B March 2014 June 2014 National summaries September 2014 December 2014 March Grade A + 7,2 7,3 4,3 5,3 4,9 Grade A 8,2 8,5 10,1 9,6 9,1 Grade B 10,6 11,1 11,3 10,5 11,0 Total 8,9 9,2 9,9 9,5 9,3 National CBDs Grade A + 0,0 5,9 6,8 6,8 6,5 Grade A 7,8 7,2 9,0 9,5 10,9 Grade B 15,2 17,2 15,8 15,6 18,6 Total 13,0 14,7 13,8 14,8 15,3 Source of data: Sapoa 2015

77 53 Office demand and vacancies Table 6.2 Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Bedfordview Grade A + Grade A Grade B Total Braamfontein Grade A+ Grade A Grade B Total Bryanston / Epsom Downs Grade A + Grade A Grade B Total Bruma Grade A + Grade A Grade B Total CBD Johannesburg Grade A Grade A Grade B Total Constantia Kloof Basin Grade A + Grade A Grade B Total Fourways Grade A Grade A Grade B Total Houghton/Killarney Grade A + Grade A Grade B Total Source of data: Sapoa

78 54 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Hyde Park / Dunkeld Grade A + Grade A Grade B Total Illovo Grade A Grade A Grade B Total Melrose/Waverley Grade A Grade A Grade B Total Midrand Grade A Grade A Grade B Total Milpark Grade A + Grade A Grade B Total Morningside Grade A + Grade A Grade B Total Parktown Grade A + Grade A Grade B Total Randburg Grade A + Grade A Grade B Total Source of data: Sapoa

79 55 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Rivonia Grade A + Grade A Grade B Total Rosebank Grade A Grade A Grade B Total Sandton & Environs Grade A Grade A Grade B Total Sunninghill Grade A + Grade A Grade B Total Woodmead Grade A + Grade A Grade B Total Cresta/Blackheath to Rand Park Grade A Grade A Grade B Total Greenstone/Edenvale Grade A Grade A Grade B Total Newtown Grade A Grade A Grade B Total Source of data: Sapoa

80 56 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Bellville (incl. Tyger Valley) Grade A + Grade A Grade B Total CBD Cape Town Grade A Grade A Grade B Total Century City Grade A Grade A Grade B Total Claremont Grade A + Grade A Grade B Total Pinelands Grade A + Grade A Grade B Total Rondebosch/ Newlands Grade A+ Grade A Grade B Total V&A Waterfront Grade A Grade A Grade B Total Source of data: Sapoa

81 57 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Berea Grade A + Grade A Grade B Total Ballito Grade A Grade A Grade B Total Hillcrest/Gillits Grade A Grade A Grade B Total CBD Durban Grade A + Grade A Grade B Total Umhlanga / La Lucia Grade A Grade A Grade B Total Westville Grade A + Grade A Grade B Total Arcadia Grade A + Grade A Grade B Total Brooklyn Grade A + Grade A Grade B Total Source of data: Sapoa

82 58 Office demand and vacancies March 2014 Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B June 2014 September 2014 December 2014 March 2015 CBD Pretoria Grade A + Grade A Grade B Total Centurion Grade A + Grade A Grade B Total Hatfield/Hillcrest Grade A + Grade A Grade B Total Highveld Technopark Grade A + - Grade A Grade B Total Menlyn Grade A + Grade A Grade B Total Pretoria Eastern Suburbs Grade A + Grade A Grade B Total Lynnwood Grade A Grade A Grade B Total Source of data: Sapoa

83 59 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Greenacres Grade A Grade A Grade B Total Newton Park Grade A Grade A Grade B Total Central / Park Drive Grade A + Grade A Grade B Total Walmer/Fairview Grade A + Grade A Grade B Total Johannesburg central Grade A Johannesburg Central Grade A Grade B Total Source of data: Sapoa

84 60 Office demand and vacancies Table 6.2 (continued) Sapoa office stock (m²) Grades A +, A & B March 2014 June 2014 September 2014 December 2014 March 2015 Johannesburg decentralized Grade A Grade A Grade B Total Pretoria decentralized Grade A Grade A Grade B Total Durban decentralized Grade A Grade A Grade B Total Cape Town decentralized Grade A Grade A Grade B Total Source of data: Sapoa

85 Rode's Report 2015:2 61 Industrial rentals and vacancies Chapter 7: Industrial rentals and vacancies Support pillars remain fragile John S. Lottering Until there is a significant turnaround in the performances of the manufacturing and retail sectors, strong growth in industrial market rentals cannot be expected Smoothed Nominal prime industrial rentals (500-m² units) Growth in retail sales volumes vs Growth in manufacturing output R/m² (log scale) Growth (%; y-o-y) Cape Peninsula Durban East Rand Central Witwatersrand Source of data: Rode's Time Series Manufacturing output Retail sales Source of data: Stats SA In the first quarter of 2015, manufacturing output volumes showed no growth when compared to the same quarter a year ago. The retail sector s performance was slightly better, with sales volumes up by roughly 3% over the same period. However, the corresponding graph depicts how the growth in output and sales volumes of these sectors has, in general, waned since In the first quarter of 2015, market rentals for prime industrial property in the Cape Peninsula showed the best yearly growth of 6%. This was followed by Durban and the East Rand, where rentals were up by 5% and 4% respectively. On the Central Witwatersrand, rentals could only muster growth of roughly 3%. Over the same period, building costs are expected to have shown growth of about 7%. This implies that in all of these major industrial conurbations, market rentals are still unable to show real growth Real prime industrial rentals (500-m² units) 2005 rands Smoothed Households that are overwhelmed by debt, high unemployment, poor credit growth and low levels of consumer confidence do, for now, still presage modest growth in retail sales volumes. As for the manufacturing sector, despite weak domestic conditions, the single largest hindrance to production remains the unreliable supply of electricity. R/m² (log scale) Cape Peninsula Durban East Rand Central Witwatersrand Source of data: Rode's Time Series; BER BCI

86 Rode's Report 2015:2 62 Industrial rentals and vacancies In Table 7.1 we examine pioneer industrial rentals, which provide a quick-and-dirty prognosis for the medium-term direction of industrial rentals. Often, pioneer rental levels represent leases signed on newly erected pre-let buildings, and these of course reflect today s building costs (in contrast to market rentals), as developers naturally expect a fair return on their development costs. Thus, pioneer rentals should not be confused with market rentals. The remainder of this chapter includes: the summary rental-change table, mean prime industrial rentals by township, the standard deviations from these mean rentals, indicative operating costs, and the predominant escalation rates. This concludes our section on industrial rentals and vacancies. Note that the industrial tables follow The reference to real means that nominal prices have been deflated (i.e. adjusted for inflation). In this chapter, industrial rentals are deflated by the Bureau for Economic Research s Building Cost Index (BER BCI). By using building costs as a deflator, the reader can interpret the graphs from a developer s point of view, i.e. they can serve as a proxy for the viability of new developments over time, holding constant capitalization rates and operating expenses. The industrial rental tables contain regression parameters in order to allow readers to interpolate rental rates for area sizes other than those given in the tables. These parameters are necessary because the relationship between rental rates and floor area is not linear. For more details on how to use these equations, refer to Annexure 3 on annexure-page XII. Readers are reminded that the vacancy figures in the graph above are not actual vacancy percentages, but rather graduations on a 0-9 vacancy scale. For more information, see the notes to the industrial tables on p.83. Furthermore, the vacancies are for all the unit sizes (250 m², 500 m², m², m² and m²) combined, as surveyed by Rode. In reality, vacancies could differ across the different-sized units.

87 Rode's Report 2015:2 63 Industrial rentals and vacancies Table 7.1 Pioneer rental rates for new, state-of-the-art industrial developments during quarter 2015:1 Highest gross rental rates achieved (1000-m² units) Rands per rentable square m² (excl VAT) Pioneer Normal prime Difference (%) Central Witwatersrand % West Rand % East Rand % Durban % Cape Peninsula % Bloemfontein %

88 Rode's Report 2015:2 64 Industrial rentals and vacancies Table 7.2 Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Area size leased in m² Vacancy a b r Central Witwatersrand Cambridge Park Wynberg Proper Strijdom Park Kya Sand Clayville/Olifantsfontein Chloorkop Amalgam Crown Mines Industria Booysens/Booysens Reserve/Ophirton Village Main/Village Deep/New Centre Benrose Steeledale/Electron/Tulisa Park Aeroton Devland/Nancefield Cleveland/Heriotdale Newlands/Martindale Kew/Wynberg East Bramley View/Lombardy West Marlboro Halfway House: hi-tech strip Halfway House: Richards Drive Commercia Kramerville/Eastgate Ext12 & Ext13 55,00 52,67 57,50 56,40 51,00 1,5 4,075-0,011-0,27 39,50 38,00 35,75 32,25 30,75 1,8 4,173-0,088-0,99 48,33 47,00 45,33 42,50 40,00 1,5 4,239-0,063-0,99 37,00 37,00 36,33 35,00 35,50 3,5 3,717-0,019-0,89 40,00 37,00 37,00 34,00 35,00 3,0 3,924-0,047-0,90 40,00 37,50 35,00 35,00 33,50 3,0 3,971-0,055-0,95 36,25 35,75 33,75 32,75 31,25 2,0 3,877-0,050-0,99 39,25 38,50 38,50 36,75 35,50 2,3-0,96 30,67 30,00 29,00 27,67 27,00 2,0-1,00 29,00 28,33 27,33 26,00 25,33 2,0 3,859-0,033 3,671-0,044 3,631-0,047-1,00 30,50 30,50 29,50 27,50 26,00 2,0 3,751-0,056-0,96 31,25 31,00 29,00 29,00 28,00 2,0 3,649-0,037-0,94 33,00 33,00 31,00 30,00 28,67 1,3 3,784-0,050-0,98 33,00 35,50 37,00 36,00 34,33 1,7 3,481 0,011 0,30 27,00 26,00 25,33 24,00 22,67 3,0 3,613-0,057-0,99 32,75 32,75 30,25 29,25 28,50 1,7 3,782-0,051-0,96 27,67 27,67 25,67 24,00 23,33 1,3 3,689-0,064-0,98 32,00 30,33 28,00 26,00 23,67 2,7 4,023-0,100-1,00 28,00 26,00 24,00 22,00 22,00 5,0 3,787-0,085-0,97 26,67 26,67 17,50 16,00 20,00 8,0 4,033-0,142-0,72 49,20 49,20 50,00 50,00 50,00 2,0 3,862 0,006 0,86 45,40 45,40 45,40 45,00 44,50 2,0 3,855-0,007-0,89 41,50 41,00 40,50 37,00 37,00 1,3 3,984-0,044-0,94 62,50 55,00 52,67 51,00 48,00 1,0 4,531-0,078-0,95

89 Rode's Report 2015:2 65 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Centurion Linbro Park Wesco Park/Eastgate Ext3, Ext11, Ext6, Ext8/Malboro North (New) City Deep North Riding Samrand Centurion Barbeque Downs Selby Ext 12/13/15/19/20/24/City West Selby Ext 5/10/14/18 Selby Ext 11 Selby Ext 3/4/6 Denver (Old) Denver (New) Kyalami Business Park Reuven Selby (Old)/Selby Ext2/Park Central Robertsham Fordsburg/Mayfair Central Witwatersrand West Rand Area size leased in m² Vacancy a b r 55,00 55,00 56,50 54,00 51,50 1,5 4,138-0,020-0,71 59,50 58,50 57,25 58,00 57,50 1,5-0,76 56,00 54,33 51,67 50,00 50,00 1,8 4,131-0,010 4,242-0,041-0,96 40,50 40,25 39,60 38,63 38,25 1,4 3,819-0,021-0,99 49,00 49,00 47,33 46,67 42,50 1,7 4,153-0,044-0,90 52,00 51,25 50,50 52,33 50,00 1,2 3,985-0,007-0,44 58,00 55,50 53,00 53,00 55,00 2,0 4,141-0,019-0,63 36,50 34,75 32,50 31,00 29,75 1,3 3,970-0,069-0,99 34,75 33,75 31,00 30,25 28,50 1,7 3,915-0,066-0,98 34,75 33,75 31,25 30,00 28,50 1,3 3,924-0,067-0,99 33,00 31,50 29,50 28,50 27,50 1,5 3,824-0,061-0,99 22,75 25,20 23,80 20,75 20,00 2,0 3,540-0,061-0,77 33,50 33,80 32,00 31,25 30,25 2,0 3,730-0,037-0,96 59,00 57,00 56,00 55,00 54,50 1,3 4,208-0,025-0,97 31,75 30,00 29,25 26,75 26,25 1,3 3,816-0,065-0,99 30,50 30,00 29,00 27,50 26,25 2,3 3,712-0,051-0,99 34,00 33,33 30,67 27,67 27,00 1,5 4,014-0,086-0,98 26,00 26,00 26,00 24,00-2, ,29 38,83 37,72 36,61 34,62 1,9 Lea Glen 32,00 30,00 28,00 28,00 25,00 3,0 3,861-0,073-0,96 Honeydew X19, 20, 21 & 22 50,00 46,00 45,00 43,00 42,50 1,5 4,171-0,051-0,95 Stormill 40,50 40,50 37,50 37,50 36,00 3,5 3,932-0,041-0,94 Chamdor 30,50 28,00 25,00 22,50 19,00 2,5 4,276-0,153-0,99 Factoria 32,50 31,50 28,50 25,00 21,50 2,0 4,291-0,140-0,98

90 Rode's Report 2015:2 66 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Randfontein: Delporton/ Aureus Boltonia Roodepoort: Technikon/Manufacta Industria North Robertville Laserpark West Rand East Rand Elandsfontein Tunney/Greenhills Henville Meadowbrook/Wilbart Sunnyrock Rustivia/Activia Park Eastleigh Sebenza Ext 14 Spartan Ext 16 (Sebenza Link) + Ext 1,3,7 Area size leased in m² Vacancy a b r 27,50 26,00 23,50 20,00 20,00 2,0 3,977-0,119-0,98 30,00 30,00 20,00 20,00 18,00 1,0 4,436-0,186-0,91 34,00 31,00 27,00 23,50 21,50 1,0 4,395-0,157-1,00 32,50 32,50 31,75 22,50 23,25 2,0 4,316-0,140-0,89 40,50 39,00 36,00 36,00 36,00 2,0 3,909-0,041-0,88 50,00 47,67 46,67 45,00 42,50 1,0 4,186-0,050-0,99 37,52 35,81 33,17 30,62 28,38 2,1 37,00 36,00 35,67 35,00 34,33 2,5 3,735-0,023-0,99 47,60 48,33 48,67 48,83 47,40 1,7 3,874 0,000 0,01 39,50 39,50 39,40 38,20 37,25 1,3 3,798-0,020-0,92 43,00 45,67 45,00 44,83 43,40 1,5 3,796 0,000-0,02 48,17 48,00 45,40 44,50 44,00 2,0 4,064-0,034-0,96 36,80 36,60 34,50 33,50 34,33 1,7 3,768-0,030-0,86 37,17 37,33 35,80 33,60 32,75 1,8 3,897-0,048-0,97 36,50 36,00 36,75 34,50 32,83 2,2 3,802-0,034-0,87 39,80 39,50 38,60 38,80 38,00 2,5 3,762-0,014-0,93 Isando 38,00 37,50 37,83 37,67 37,00 3,3 3,672-0,006-0,75 Isando 3 39,20 39,20 39,20 38,20 36,50 2,4 3,806-0,022-0,87 Jet Park 43,33 43,33 42,50 41,67 35,17 2,3 4,136-0,060-0,82 Alrode & Xs 38,00 34,50 33,00 32,50 31,50 1,3 3,915-0,056-0,93 Alrode South 34,00 30,67 34,33 31,67 31,33 2,0 3,602-0,018-0,42 Alberton 34,83 32,33 33,00 36,85 33,00 2,0 3,492 0,005 0,11 Aeroport/ Spartan Ext 2 48,50 48,33 47,17 47,00 45,50 2,5 3,999-0,020-0,95 Delville Roodekop 31,50 30,50 28,00 28,00 26,50 1,0 3,754-0,056-0,96

91 Rode's Report 2015:2 67 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Area size leased in m² Vacancy a b r Wadeville: Industrial zoning 35,00 35,67 34,33 34,00 32,33 2,2 3,724-0,027-0,88 Route 24/ Meadowdale 43,80 43,80 43,40 42,50 42,00 1,7 3,870-0,015-0,97 Germiston S/ Industries E 30,00 29,75 27,00 26,00 25,20 1,6 3,759-0,063-0,97 Driehoek/ Industries W 33,75 35,80 34,80 34,00 29,50 2,5 3,810-0,043-0,69 Knights 29,33 29,33 26,67 26,33 24,00 2,0 3,764-0,067-0,95 Spartan Proper 39,40 38,80 39,60 36,20 36,20 2,0 3,864-0,032-0,86 Founders View 47,67 47,67 46,00 43,60 42,80 2,0 4,101-0,040-0,97 Longmeadow 60,33 60,33 56,83 56,17 56,00 1,5 4,261-0,029-0,91 Pomona/ Kempton park 49,50 49,50 50,00 48,50 48,00 2,5 3,972-0,011-0,80 EastRand 41,01 40,72 39,78 38,86 37,37 2,0 Far East Rand Boksburg North & East 35,20 35,00 37,80 32,40 30,50 2,3 3,877-0,050-0,72 Benoni South 35,00 33,75 31,75 31,25 29,50 2,0 3,854-0,055-0,98 New Era/ Vulcania 30,83 26,88 23,75 23,75 24,00 2,2 3,809-0,080-0,85 Nuffield 30,00 30,00 25,00 25,00 23,50 1,5 3,890-0,087-0,92 Fulcrum 27,75 27,75 26,75 24,50 23,00 2,0 3,719-0,066-0,96 Apex 34,50 34,50 33,00 30,50 30,00 1,8 3,854-0,054-0,97 La Boré Brakpan 27,50 27,00 24,00 23,00 20,00 2,5 3,915-0,105-0,97 Morehill Ext 8 Benoni 35,25 35,50 35,00 33,00 30,00 1,0 3,885-0,053-0,89 Far East Rand 31,24 30,29 29,10 27,00 25,48 1,8 Pretoria Mitchell St 30,00 30,00 30,00 30,00 25,00 3,0 3,700-0,048-0,71 Pretoria Industrial Township 35,00 32,50 30,00 30,00 27,50 2,5 3,941-0,073-0,96 Koedoespoort 30,00 27,50 33,00-3, Waltloo/ Despatch 35,00 33,33 31,00 31,00 30,00 3,0 3,811-0,049-0,94 Silverton/ Silvertondale 45,00 40,00 34,00 35,00 30,00 2,0 4,450-0,122-0,94 Samcor Park 39,00 39,00 39,00 35,00 30,00 2,5 4,179-0,084-0,88 Sunderland Ridge 35,00 45,00 45,00 45,00 45,00 4,0 3,308 0,064 0,69 Hermanstad 25,00 25,00 25,00 23,00 23,00 2,0 3,422-0,034-0,89

92 Rode's Report 2015:2 68 Industrial rentals and vacancies Kirkney Hennopspark X15 & X7 Gateway Lyttleton Manor X4/X6 Pretoria North Silvertondale X1 Brits Klerksoord Rosslyn Pretoria Polokwane Lebowakgomo Superbia Industria Ladine Futura Laboria Magna Via Seshego Polokwane Nelspruit Nelspruit East Nelspruit West Rocky's Drift Riverside Park Nelspruit Durban Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Area size leased in m² Vacancy a b r 25,00 25,00 25,00 23,00 23,00 2,0 3,422-0,034-0,89 55,00 55,00 55,00 50,00 50,00 3,0 4,239-0,039-0,89 56,00 56,00 53,50 52,50 52,50 1,5 4,168-0,025-0,93 55,00 55,00 50,00 45,00 40,00 1,0 4,659-0,111-0,97 32,50 30,00 30,00 30,00 25,00 2,0 3,858-0,068-0,85 42,50 39,00 39,00 40,00 35,00 3,0 3,991-0,047-0,80 25,00 25,00 25,00 25,00 20,00 2,0 3,584-0,059-0,71 20,00 20,00 20,00 20,00 15,00 3,0 3,466-0,076-0,71 33,50 31,67 30,00 27,33 25,00 2,5 4,055-0,097-1,00 37,11 35,82 35,04 33,64 31,00 2, ,50 30,00 25,50 20,00 18,00 2,5 4,953-0,246-0,99 40,00 35,00 26,50 19,00 19,00 2,5 5,222-0,277-0,98 40,00 33,50 25,00 19,00 18,00 2,0 5,243-0,285-0,98 35,00 27,50 25,00 19,00 18,00 2,5 4,752-0,224-0,98 30,00 28,00 25,00 20,00 18,00 3,0 4,426-0,180-0,99 40,00 37,50 30,00 22,50 21,00 2,0 5,041-0,238-0, ,00 32,27 26,27 19,91 18,89 2,4 43,50 43,50 40,00 35,00 30,00 2,0 4,529-0,127-0,96 43,50 43,50 40,00 35,00 30,00 2,0 4,529-0,127-0,96 40,00 38,00 35,00 30,00 28,00 8,0 4,403-0,126-0,99 60,00 55,00 50,00 45,00 40,00 5,0 4,832-0,133-1,00 46,75 45,00 41,25 36,25 32,00 4,3 Springfield Park 50,00 50,00 47,50 47,50 47,50 2,5 4,021-0,020-0,86 Mayville 42,00 42,00 40,00 37,50 36,00 2,5 4,065-0,056-0,98

93 Rode's Report 2015:2 69 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Phoenix North Coast Rd / Briardene Briardene Industrial Park Umgeni Rd/ Stamford Hill Umbilo/ Sydney Rd/ Gale St Jacobs Mobeni Prospecton Ithala Industrial Estate Pinetown Central New Germany Isipingo Rossburgh/ South Coast Rd Edwin Swales Drive Glen Anil Brickfield Rd Verulam Canelands Tongaat New Westmead/ Mahogany Westmead Mariann Park/ Southmead Maxmead Ringroad Industrial Park Avoca/ Red Hill/ Northgate Falcon Park Area size leased in m² Vacancy a b r 42,50 42,50 42,00 42,00 42,00 1,5 3,775-0,005-0,86 50,00 50,00 47,50 46,50 46,50 2, ,00 52,50 49,00 49,00 46,50 1, ,00 41,00 39,00 37,50 36,50 2,0 3,960-0,042-0,98 41,00 40,00 41,00 41,00 42,50 2,5 3,626 0,013 0,71 46,50 46,50 46,50 45,00 45,00 2,3 3,919-0,013-0,89 46,50 46,50 46,50 45,00 45,00 2, ,00 49,00 46,50 45,00 43,50 3,3 3,970-0,021-0, ,50 51,50 49,00 47,50 47,50 2,3 4,123-0,032-0,95 46,50 45,00 43,50 41,00 40,00 2,3 4,128-0,052-1,00 35,00 35,00 35,00 35,00 35,00 2, ,00 35,00 35,00 32,00 32, ,00 45,00 40,00 42,00 42,00 3,0 3,938-0,026-0,62 50,00 50,00 50,00 48,00 45,00 2,0 4,117-0,033-0, ,00 28,00 30,00 30,00 30,00-3,185 0,027 0,86 51,50 51,50 50,00 51,00 51,00 2,3 3,956-0,003-0,35 51,50 51,50 50,00 48,50 48,50 2,5 4,079-0,024-0,96 41,50 41,50 41,50 43,00 43,00 3,0 3,639 0,014 0,89 55,00 55,00 42,00 42,00 42,00 2,0 4,581-0,105-0, ,00 42,00 40,00 40,00 40,00 5,0 3,841-0,019-0, ,00 59,00 55,00 55,00 53,50 4,3 4,272-0,035-0,93 4,163-0,025-0,71 River Horse Valley Business Mount Edgecombe 55,00 55,00 55,00 55,00 50,00 4,

94 Rode's Report 2015:2 70 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Umbogintwini/ Southgate Southgate Industrial Park Hibiscus Industrial Park Umgeni Park Hammersdale Cato Ridge Durban Area size leased in m² Vacancy a b r 55,00 55,00 48,00 48,00 48,00-4,297-0,053-0,86 55,00 55,00 48,00 48,00 48,00 4,0 4,297-0,053-0, ,00 55,00 55,00 50,00 50,00 4, ,00 26,00 26,00 26,00 30,00 2,5 3,024 0,038 0,71 32,50 32,50 32,50 32,50 32,50 1,5 3,481 0,000 0,00 45,79 45,68 43,91 43,21 42,89 2,6 Cape Peninsula Viking Place 46,67 45,67 45,00 50,00 47,50 1,3 3,723 0,018 0,53 Glosderry 52,50 50,00 50,00 47,50 45,00 1,0 4,222-0,047-0,97 Paarden Eiland/ Metro 47,25 47,50 47,50 48,75 44,75 2,0 3,927-0,011-0,41 Montague Gardens 44,60 42,40 41,75 40,50 38,33 3,0 4,044-0,046-0,98 Marconi Beam 45,00 43,75 42,50 41,25 39,50 3,0 4,040-0,042-0,99 Killarney Gardens 39,33 37,67 36,67 35,00 35,00-3,885-0,040-0,97 Racing Park 35,75 36,25 33,50 32,75 34,50 4,0 3,701-0,023-0,64 Atlantis Woodstock/ Salt River/ Observatory 52,50 50,00 46,67 46,67 43,33 3,0 4,277-0,059-0,96 Athlone 1 & 2 30,33 30,33 29,33 28,67 28,00 5,0 3,578-0,029-0,98 Lansdowne Nerissa 31,25 31,25 31,25 29,00 28,00 5,0 3,681-0,039-0,91 Sand Industria Ottery Hillstar 37,50 37,50 35,00 35,00 35,00 4,0 3,771-0,027-0,86 Ottery Sunset 35,00 35,00 35,00 35,00 35, Diep River 53,33 51,00 52,50 50,00 50,00 2,5 4,078-0,020-0,82 Elfindale 55,00 50,00 52,50 50,00 50,00 2,0 4,116-0,025-0,70 Monwood/ Philippi East 26,50 25,50 25,00 25,00 24,00-3,424-0,028-0,94 Retreat/ Steenberg 48,33 45,67 42,50 42,50 45,00-3,993-0,027-0,61 Capricorn Park 50,00 50,00 49,00 50,00 47,50 4,0 3,990-0,013-0,70 Maitland 48,33 46,25 41,25 37,67 35,33 2,5 4,491-0,109-0,99

95 Rode's Report 2015:2 71 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) Area size leased in m² Vacancy a b r Ndabeni 50,00 48,33 43,33 41,67 39,33-4,367-0,082-0,98 Airport 45,40 43,40 42,40 40,60 38,75 3,0 4,091-0,050-0,99 Epping 1 & 2 41,60 39,40 37,80 37,20 36,60 2,7 3,935-0,041-0,95 WP Park 47,50 45,00 43,00 41,25 41,00 1,5 4,122-0,050-0,97 Elsies River (excl, Central Park) 31,40 30,00 28,60 28,00 27,50 3,3 3,674-0,044-0,97 Parow Beaconvale 40,40 39,00 37,00 34,20 33,80 2,5 4,056-0,064-0,99 Tygerberg Business Park 40,00 38,33 38,33 37,67 35,00 2,5 3,894-0,037-0,92 Parow Industria 38,17 37,33 35,00 32,33 31,67 3,0 4,028-0,068-0,99 Parow East 41,00 40,00 36,90 37,25 36,25 1,5 3,931-0,041-0,91 Bellville Oakdale 42,50 40,00 40,00 35,00 35,00 1,5 4,134-0,070-0,95 Bellville Stikland/ Kaymor 41,17 39,33 36,83 34,20 33,25 1,8 4,129-0,075-0,99 Bellville Triangle 35,50 34,17 31,17 29,80 28,00 1,8 4,014-0,080-0,99 Bellville South/ Sacks Circle 33,00 33,17 30,33 30,00 29,00 3,0 3,764-0,047-0,94 Kraaifontein 35,67 33,75 33,25 32,67 31,00 0,7 3,789-0,041-0,96 Brackenfell Industria 38,50 36,17 34,17 32,17 31,67 2,2 4,006-0,067-0,98 Everite Brackenfell 42,50 40,33 38,33 38,00 36,50 1,7 3,996-0,047-0,97 Kuils River 34,20 32,20 30,80 29,00 29,00 1,5 3,833-0,057-0,97 Blackheath 35,17 34,33 33,60 32,00 32,50 3,3 3,723-0,030-0,94 Saxenburg Industrial Park 40,00 37,60 36,40 34,00 35,75 2,3 3,903-0,043-0,85 Okavango Park 40,40 37,60 36,20 34,00 34,00 1,6 4,003-0,058-0,97 Firgrove 35,00 35,00 35,00 30,00 30,00-3,931-0,062-0,89 The Interchange (Somerset) 50,00 50,00 50,00 45,00 45,00-4,169-0,043-0,89 Strand Halt 34,87 33,44 32,08 30,36 29,12-3,883-0,060-1,00 Broadlands 35,00 35,00 30,00 30,00 30,00-3,883-0,060-0,86 Cape Peninsula 34,87 33,44 32,08 30,36 29,12 2,4 Port Elizabeth Deal Party 38,00 38,00 35,00 35,00 35,00 2,0 3,813-0,032-0,86

96 Rode's Report 2015:2 72 Industrial rentals and vacancies Table 7.2 (continued) Mean prime industrial market rentals as in quarter 2015:1 (R/m² p.m.; gross lease; excl VAT) North End Korsten/ Neave/ Sidwell/ Sydenham South End Walmer Uitenhage: Volkswagen area/nelson Mandela Bay Logistics Park Uitenhage: Hella/Kruisrivier Struandale Markman Township Perseverance Walmer Greenbushes Fairview Port Elizabeth Bloemfontein Hilton East End Harvey Road Old Industrial Hamilton: Mill St Hamilton: G Lubbe St Estoir Area size leased in m² Vacancy a b r 38,00 38,00 35,00 35,00 35,00 2,0 3,813-0,032-0,86 38,00 38,00 35,00 35,00 35,00 2,0 3,813-0,032-0,86 38,00 38,00 35,00 35,00 35,00 1,0 3,813-0,032-0,86 35,00 30,00 30,00 25,00 25,00 2,0 4,151-0,113-0,95 20,00 15,00 15,00 15,00 15,00 4,0 3,278-0,073-0,69 38,00 38,00 35,00 35,00 35,00 2,0 3,813-0,032-0,86 20,00 20,00 20,00 20,00 20,00 5, ,00 38,00 35,00 35,00 35,00 2,0 3,813-0,032-0,86 45,00 40,00 38,00 35,00 35,00 1,0 4,232-0,083-0,95 45,00 40,00 38,00 35,00 35,00 1,0 4,232-0,083-0,95 45,00 45,00 40,00 38,00 38,00 1,0 4,182-0,067-0,94 36,50 34,83 32,58 31,50 31,50 2,1 47,50 42,00 33,50 28,00 22,00 2,5-0,99 45,00 43,00 35,00 30,00 20,00 2,0-0,96 50,00 37,50 33,00 24,50 23,00 2,8-0,98 35,00 31,00 28,00 23,00 20,00 3,3-1,00 28,00 25,00 21,50 19,50 16,50 3,8-0,99 25,00 24,00 21,50 18,50 16,00 3,8-0,99 48,00 45,00 42,50 35,00 32,50 2,3 Bloemfontein 41,45 35,36 30,71 25,31 21,64 3,0 5,294-0,255 5,328-0,261 5,295-0,260 4,599-0,187 4,276-0,171 4,097-0,152 4,650-0,137-0,99

97 Rode's Report 2015:2 73 Industrial rentals and vacancies Table 7.3 Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Central Witwatersrand Cambridge Park Wynberg Proper Strijdom Park Kya Sand Clayville/Olifantsfontein Chloorkop Amalgam Crown Mines Industria Booysens/Booysens Reserve/Ophirton Village Main/Village Deep/New Centre Benrose Steeledale/Electron/Tulisa Park Aeroton Devland/Nancefield Cleveland/Heriotdale Newlands/Martindale Kew/Wynberg East Bramley View/Lombardy West Marlboro Halfway House: hi-tech strip 5,00 5,25 4,33 5,08 3,64 2,12 3,34 2,28 1,25 2,16 2,36 2,50 0,82 0,82 1,25 0,00 0,00 0,00 0,00 0,00 0,00 0,50 0,00 0,00 2,17 1,30 1,30 2,28 3,96 2,60 2,96 2,38 4,19 3,56 2,94 2,05 0,82 1,25 0,94 1,41 4,56 4,56 4,97 3,77 1,30 1,22 1,00 1,00 1,41 1,41 0,82 1,63 3,00 0,50 1,41 2,16 2,16 2,94 2,05 1,41 1,92 1,92 1,09 0,83 3,09 3,09 4,50 4,32 4,32 3,30 1,63 2,16 0,00 0,00 0,00 0,00 13,12 13,12 2,50 4,00 5,71 5,71 5,48 6,60 Halfway House: Richards Drive 3,44 3,44 3,83 3,54 Commercia 3,50 4,00 4,50 5,00 4,00 AP, AW, BR, MR, QU 2,95 AP, AW, MR, QU 2,00 AP, BR, QU 0,50 AP, BR, QU 0,00 AP, QU 1,50 AP, QU 2,17 AP, BR, QU, RO 1,50 AP, BR, QU, RO 2,94 AP, QU, RO 1,70 AP, BR, QU 2,55 AP, BR, QU, RO 0,71 AP, BR, QU, RO 0,94 AP, QU, RO 1,70 AP, QU 1,70 AP, BR, QU 0,87 AP, BR, QU, RO 3,40 AP, QU, RO 3,30 AP, AW, QU 0,00 QU 0,00 AP, BR, QU 6,60 AP, AW, BR, MR, QU 4,27 AP, AW, BR, MR, QU 5,00 AP, QU

98 Rode's Report 2015:2 74 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Kramerville/Eastgate Ext12 & Ext13 Centurion Linbro Park Wesco Park/Eastgate Ext3, Ext11, Ext6, Ext8/Malboro North (New) City Deep North Riding Samrand Centurion Barbeque Downs Selby Ext 12/13/15/19/20/24/City West Selby Ext 5/10/14/18 Selby Ext 11 Selby Ext 3/4/6 Denver (Old) Denver (New) Kyalami Business Park Reuven Selby (Old)/Selby Ext2/Park Central Robertsham Fordsburg/Mayfair ,50 8,16 5,25 2,94 10,00 10,00 8,50 6,00 3,64 4,39 2,77 2,45 6,98 4,92 4,71 4,08 3,64 3,56 3,72 3,90 2,94 2,94 5,25 4,99 7,04 6,50 7,30 7,59 7,00 4,50 5,00 5,00 6,02 4,32 4,77 4,06 4,44 3,63 3,39 3,34 4,44 3,63 3,56 3,16 3,39 2,69 2,18 1,66 1,92 5,19 5,67 1,30 3,35 3,06 3,41 3,42 5,35 5,10 6,63 5,48 3,42 2,12 1,92 2,05 2,87 1,90 1,79 1,80 1,41 1,25 0,94 2, ,00 AP, BR, QU 3,50 AP, QU 3,28 AP, BR, MR, QU 5,00 AW, BR, QU 4,09 AP, BR, MR, QU, RO 2,50 AP, BR, QU 8,16 AP, BR, MR, QU 0,00 AP, QU 4,76 AP, BR, QU, RO 3,50 AP, BR, QU, RO 3,50 AP, BR, QU, RO 2,50 AP, BR, QU, RO 1,41 AP, BR, MR, QU, RO 2,86 AP, BR, MR, QU, RO 5,77 AP, AW, BR, MR, QU 2,59 AP, BR, QU, RO 2,59 AP, BR, MR, QU, RO 2,94 AP, QU, RO 0,00 0,00 0,00 0,00 - QU West Rand Lea Gl en Honeydew X19, 20, 21 & 22 7,07 5,66 4,24 4,24 Stormill 6,36 6,36 3,54 3, QU 3,54 AP, QU 2,83 AP, QU

99 Rode's Report 2015:2 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Chamdor 6,36 2,83 4,24 3,54 1,41 AP, QU Factoria 10,61 9,19 9,19 7,07 4,95 AP, QU Randfontein: Delporton/Aureus 3,54 2,83 2,12 0,00 0,00 AP, QU Boltonia AP Roodepoort: Technikon/Manufacta 8,49 9,90 4,24 4,95 2,12 AP, QU Industria North Robertville Laserpark 3,54 3,54 4,60 3,54 6,36 8,49 5,66 5,66 4,36 2,08 1,53 2,65 2,47 AP, QU 5,66 AP, QU 3,54 AP, BR, QU East Rand Elandsfontein Tunney/Greenhills Henville Meadowbrook/Wilbart Sunnyrock Rustivia/Activia Park Eastleigh Sebenza Ext 14 Spartan Ext 16 (Sebenza Link) + Ext1,3,7 Isando Isando 3 Jet Park Alrode & Xs Alrode South 2,37 3,95 3,50 4,29 4,50 AP, BR, MH, MR, QU, RO 2,51 4, 77 7,09 AP, BR, MH, MR, QU, RO 6,56 6, ,58 AP, BR, MR, QU, RO 2,55 6,02 6,45 10,94 13,05 AP, BR, MH, MR, QU, RO 2,23 2,53 2,70 4,12 6,00 AP, BR, MH, MR, QU, RO 4,15 4,22 3,42 4,09 4,04 AP, BR, MR, QU, RO 1,83 1,97 1,64 1,95 2,87 AP, BR, MH, MR, QU, RO 2,38 2,00 2,75 1,00 3,75 AP, BR, MR, QU 3,35 3,81 5,03 5,07 5,70 AP, BR, MR, QU, RO 2,45 2,51 2,71 2,25 2,68 AP, BR, MH, MR, QU, RO 3,70 3,70 3,70 5,40 4,43 AP, BR, MR, QU, RO 3,78 3,78 4,72 3,78 14,23 AP, BR, MH, MR, QU, RO 5,60 2,38 5,72 6,81 9,11 AP, BR, QU, RO 3,46 5,13 4,04 7,64 9,45 AP, BR, QU Alberton 0,76 4,73 6,56 7,28 16,97 AP, BR, QU

100 Rode's Report 2015:2 76 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Aeroport/Spartan Ext 2 Delville Roodekop Wadeville: Industrial zoning Route 24/Meadowdale Germiston S/Industries E Driehoek/Industries W Knights Spartan Proper Founders View Longmeadow Pomona/Kempton Park 3,08 3,44 5,12 5,02 4,95 3,54 2,83 2,83 5,13 4,36 2,00 2,36 7,07 4,93 6,35 6,08 4,15 4,15 4,67 3,32 3,56 3,86 2,35 3,94 4,35 6,42 7,26 7,31 5,13 5,13 3,06 3,21 2,61 2,59 2,61 5,07 2,25 2,25 2,53 2,19 5,28 5,28 8,16 9,17 4,20 4,20 4,08 3,00 6,66 AP, BR, MH, MR, QU, RO 2,12 AP, RO 1,73 AP, MR, QU, RO 5,51 AP, MR, QU, RO 3,56 AP, MH, MR, QU, RO 3,56 AP, BR, MR, QU, RO 3,87 AP, BR, MR, QU, RO 4,00 AP, QU, RO 6,14 AP, BR, MR, QU, RO 2,49 AP, BR, MH, MR, QU, RO 9,53 AP, BR, MH, MR, QU, RO 4,00 AP, BR, QU, RO Far East Rand Boksburg North & South Benoni New Era/Vulcania Nuffield Fulcrum Apex Labore Brakpan 3,11 3,08 10,38 2,51 4,08 4,79 2,36 2,99 3,82 4,73 2,50 2,50 0,00 0,00 0,00 0,00 3,18 3,18 1,77 0,71 0,71 0,71 1,41 0,71 3,54 4,24 1,41 2,83 1,00 AP, BR, MR, QU, RO 1,00 AP, BR, QU, RO 1,73 AP, MR, QU, RO 2,12 AP, QU 1,41 AP, QU 0,00 AP, QU 0,00 AP, QU Morehill Ext 8 Benoni 0,35 0,71 0, AP, QU Pretoria Mitchell St AP

101 Rode's Report 2015:2 77 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Pretoria Industrial Township Koedoespoort Waltloo/ Despatch Silverton/ Silvertondale Samcor Park Sunderla nd Ri dge Hermanstad Kirkney Hennopspark X15 & X16 Gateway Lyttl eton M anor X4/X6 Pretoria North Silvertondale X1 Brits Klerksoord Rosslyn Polokwane Lebowakgomo 7,07 3,54 0,00 0,00 3,54 AI 7,07 7, ,00 5,77 5,66 5,66 0,00 0,00 1,41-1,41 1,41 1, AP, MAS - AI, AP, MAS - AI, MAS - AI, AP - AP - AP - AP - AP 1,41 1,41 2,12 3,54 3,54 AP, MAS ,54 0,00 0,00 0,00 3,54 1,41 1, AP 0,00 AI, AP - AI, AP - AP - AP 2,12 3,51 2,00 4,62 5,00 AP, AI, MAS Superbia 0,71 0,00 0,71 0,00 - ES, MO Industria 0,00 0,00 0,71 1,41 1,41 ES, MO Ladine 0,00 2,12 0,00 1,41 0,00 ES, MO Futura - 0,71 0,00 1,41 - ES, MO Laboria ES Magna Via 0,00 3,54 0,00 3,54 1,41 ES, MO Seshego

102 Rode's Report 2015:2 78 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes Nelspruit Nelspruit East Nelspruit West Rocky s Drift Riverside Park Durban PM PM PM PM Springfield Park 2,00 2,00 2,50 2,50 Mayville 0,00 0,00 2,00 2,50 Phoenix 2,50 2,50 0,00 0,00 North Coast Rd/Briardene 5,00 5,00 2,50 1,50 Briardene Industrial Park 0,00 2,50 1,00 1,00 Umgeni Rd/Stamford Hill 1,00 1,00 1,00 2,50 Umbilo/Sydney Rd/Gale St 1,00 0,00 1,00 1,00 Jacobs 1,50 1,50 1,50 0,00 Mobeni 1,50 1,50 1,50 0,00 Prospecton 5,00 1,00 1,50 0,00 Ithala Industrial Estate Pinetown Central 3,50 3,50 1,00 2,50 New Germany 1,50 0,00 1,50 1,00 Kwa Debeka Industrial Park Isipingo 0,00 0,00 0,00 0,00 Rossburgh/South Coast Rd 0,00 0,00 0,00 0,00 2,50 ML, QP 4,00 ML, QP 0,00 ML, QP 1,50 ML, QP 1,50 ML, QP 1,50 ML, QP 2,50 ML, QP 0,00 ML, QP 0,00 ML, QP 1,50 ML, QP - 2,50 ML, QP 2,00 ML, QP - 0,00 ML 0,00 ML

103 Rode's Report 2015:2 79 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Edwin Swales Drive 0,00 0,00 0,00 0,00 Glen Anil 0,00 0,00 0,00 0,00 Brickfield Rd Verulam Canelands Tongaat 0,00 0,00 0,00 0,00 New Westmead/Mahogany 3,50 3,50 2,00 1,00 Westmead 3,50 3,50 2,00 3,50 Mariann Park/Southmead 3,50 3,50 3,50 5,00 Maxmead 0,00 0,00 0,00 0,00 Ringroad Industrial Park Avoca/Red Hill/Northgate 0,00 0,00 0,00 0,00 Falcon Park River Horse Valley Business Estate 1,00 1,00 0,00 0,00 Mount Edgecombe 0,00 0,00 0,00 0,00 Umbogintwini/Southgate 0,00 0,00 0,00 0,00 Southgate Industrial Park 0,00 0,00 0,00 0,00 Hibiscus Industrial Park Umgeni Park 0,00 0,00 0,00 0,00 Hammersdale 1,00 1,00 1,00 1,00 Cato Ridge 7,50 7,50 7,50 7,50 0,00 ML 0,00 ML ,00 ML 1,00 ML, QP 3,50 ML, QP 5,00 ML, QP 0,00 QP - 0,00 ML - 1,50 ML, QP 0,00 ML 0,00 ML 0,00 ML - 0,00 ML 5,00 ML, QP 7,50 ML, QP Contributor codes

104 Rode's Report 2015:2 80 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Cape Peninsula Viking Place Glosderry Paarden Eiland/Metro Montague Gardens Marconi Beam Killarney Gardens Racing Park Atlantis Woodstock/Salt River/Observatory Athlone 1 & 2 Landsdowne Nerissa Sand Industria Ottery Hillstar Ottery Sunset Diep River Elfindale Monwood/Philippi East Retreat/Steenberg Capricon Park Maitland Ndabeni Area size leased in m² ,43 10,53 15,00 5,00 7,50 5,00 5,00 2,50 2,28 2,50 2,50 4,15 3,26 5,00 4,09 6,18 3,54 5,45 4,33 6, Contributor codes 2,50 AN, AQ, DN, PL 0,00 AN, PL 5,72 AN, AP, AQ, GB 6,24 AN, AQ, DN, GB, PL 6,95 AN, AQ, DN, GB 4,19 2,05 2,36 0,00 0,00 AN, AQ, GB 3,77 3,03 4,50 3,90 0,50 AN, AQ, DN, GB ,59 4,08 2,36 2,36 3,30 3,30 1,89 0,94 2,36 AN, AP, AQ, GB 0,00 AN, AP, GB 1,25 1,25 1,25 1,00 0,00 AN, AP, GB ,50 2,50 0,00 0,00 0,00 0,00 0,00 0,00 8,50 6,48 7,50 5,00 10,00 7,07 7,50 5,00 0,00 AN, GB 0,00 GB 5,00 AN, GB, PL 5,00 AN, GB, PL 1,50 0,50 0,00 0,00 0,00 AP, GB 4,71 3,30 2,50 2,50 0,00 AN, AP, GB, PL 7,07 4,08 4,32 5,00 2,50 AN, GB, PL 4,71 2,17 2,17 2,05 7,07 4,71 2,36 2,36 0,80 2,06 2,24 1,20 Airport Epping 1 & 2 4,27 5,89 5,42 5,64 0,47 AN, AP, GB, PL 4,19 AN, GB, PL 3,03 AN, AP, AQ, DN, GB 5,68 AN, AP, AQ, DN, GB

105 Rode's Report 2015:2 81 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Area size leased in m² Contributor codes , WP Park Elsies River (excl, Central Park) Parow Beaconvale Tygerberg Business Park Parow Industria Parow East Bellville Oakdale Bellville Stikland/Kaymor Bellville Triangle Bellville South/Sacks Circle Kraaifontein Brackenfell Industria Everite Brackenfell Kuils River Blackheath Saxonburg Industrial Park Okavango Firgrove The Interchange (Somerset West) 2,50 0,00 2,12 2,17 4,96 4,56 3,77 4,43 4,54 5,83 5,97 7,44 4,08 6,24 6,24 6,13 5,87 6,55 6,93 6,37 5,62 5,40 5,50 5,54 2,50 5,00 5,00 5,00 1,86 3,04 1,95 4,58 3,10 3,62 2,73 3,49 6,78 6,47 5,93 5,89 3,30 2,17 2,05 3,30 1,80 2,91 4,63 3,39 2,50 2,05 2,36 0,00 3,12 5,31 4,07 3,58 5,21 5,41 5,95 6,90 3,16 5,00 6,15 4,90 3,26 3,88 5,23 5,05 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Strand Halt Broadlands 0,00 0,00 0,00 0,00 0,00 AQ 2,94 AN, AP, AQ, GB 4,56 AN, AP, AQ, DN, GB 6,88 AN, AP, AQ, DN, GB 8,16 AQ, DN, GB 6,47 AN, AP, AQ, CA, DN, GB 6,50 AN, AP, AQ, CA, GB 5,00 AQ, DN 4,66 AN, AQ, CA, DN, GB, WD 3,46 AN, AQ, CA, DN, GB, WD 6,45 AN, AQ, CA, DN, GB, WD 2,94 AN, AQ, CA, WD 2,36 AN, AQ, CA, DN, GB, WD 1,50 AN, AQ, CA, PL 3,61 AN, AQ, DN, GB, WD 7,63 AN, AQ, CA, GB, PL, WD 2,59 AN, AQ, DN, GB, WD 5,05 AN, AQ, CA, DN, WD 0,00 AQ 0,00 AQ

106 Rode's Report 2015:2 82 Industrial rentals and vacancies Table 7.3 (continued) Standard deviation from mean prime industrial market rentals as in 2015:1 Port Elizabeth Deal Party North End Korsten/Neave/Sidwell/Sydenham South End Walmer Uitenhage: Volkswagen area/nmblp Uitenhage: Hella/Kruisrivier Struandale Markman Township Perseverance Walmer Greenbushes Area size leased in m² QV QV QV MJ QV QV QV QV QV MJ QV Fairview MJ Bloemfontein Hilton 2,50 2,00 1,50 0,00 0,00 EK, EQV East End 0,00 3,00 0,00 3,00 0,00 EK, EQV Harvey Road 10,00 2,50 3,00 0,50 3,00 EK, EQV Old Industrial 0,00 1,00 1,00 0,00 0,00 EK, EQV Hamilton: Mill St 0,00 0,00 1,50 0,50 1,50 EK, EQV Hamilton: G Lubbe St 0,00 1,00 1,50 0,50 2,00 EK, EQV Estoir 0,00 0,00 2,50 3,00 2,50 EK, EQV Contributor codes

107 Rode's Report 2015:2 83 Industrial rentals and vacancies Notes to the industrial rental tables 1. The rentals are the achievable or market rates for the quarter shown in the table heading, and apply to industrial and warehouse space for the area sizes indicated. The rentals are the averages of the rates as per our panels of experts in the various cities. 2. The rental rates assume gross leases, market escalation rates and leases of 3 to 5 years. 3. In terms of a gross lease, the tenant in a stand-alone building typically pays only for his refuse removal, water and electricity, as well as internal maintenance and increases in rates and taxes. He provides and pays for his own security. All other expenses are for the account of the landlord. In a park the tenant pays, in addition to his gross rental, his pro rata share of security costs, security lighting and landscaping. 4. The rental rates also apply to the office portion, where this is less than 1% of the total building area. For larger office portions, the office rental is, as a rule of thumb, about 15% of the industrial rental rate. 5. Prime space is space that is easily lettable because it satisfies each of the following prerequisites: a. generally in a good condition; b. satisfactory macro access (i.e. access to freeway); c. satisfactory micro access (i.e. from street to building); d. proper loading facilities; e. eaves >4,0m (excluding micro/mini units); f. on ground level; g. adequate three-phase electrical power; h. clear spans. The eight conditions above are prerequisites for space to be considered prime. However, a building may possess additional enhancements that could improve lettability through increasing the size of the potential tenant pool. Such enhancements could include sufficient office accommodation, adequate parking, sprinkler systems, masonry up to sill height, adequate floor loadings, roof insulation, sufficient yardspace and a good location (as opposed to access). 6. Secondary space is space which is not classifiable as prime because it does not satisfy all eight prerequisites for prime space listed above. Such space is typically old buildings or structures which have been haphazardly renovated. They would have poor access, too little yardspace or office accommodation, inadequate goods lifts, no three-phase power and obsolete electrics and ablution facilities. Such space is often (but not exclusively) found in highly urbanised areas.

108 Rode's Report 2015:2 84 Industrial rentals and vacancies 7. Vacancy scale for industrial townships. The vacancy levels are based on a scale of 0 to 9 as shown below: Nil Low Medium High The scale should be interpreted as follows: 0 = no vacancy 1 = low vacancy; 2 = low vacancy 3 = low + vacancy 4 = medium vacancy; 5 = medium vacancy 6 = medium + vacancy 7 = high vacancy; 8 = high vacancy 9 = high + vacancy where: low = <1 vacancy; medium = 1-2 vacancy; high = >2 vacancy. 8. For notes on how to use a regression equation in order to interpolate a rental rate, see Annexure 3.

109 Rode's Report 2015:2 85 Industrial rentals and vacancies Table 7.4 Predominant market escalation rates (%) for industrial leases Average as in quarter 2015:1 5-year leases Mean SD N Central Witwatersrand 8,46 0,8 6 West Rand 8,00 0,0 4 East Rand 8,56 0,8 6 Far East Rand 7,80 0,4 5 Pretoria 8,00 0,0 2 Polokwane 9,00 0,0 2 Nelspruit 8,00-1 Durban 8,75 0,3 2 Cape Peninsula 8,07 0,4 6 Bloemfontein 8,50 0,7 2 Notes: 1. These are the averages of the predominant i.e. most often achieved market escalation rates as reported by our panel of experts. Table 7.5 Indicative operating expenses for industrial buildings As in quarter 2015:1 in rands per m² per month Stand-alone Park R/m² SD N R/m² SD N Central Witwatersrand 8,80 2, ,60 2,30 5 West Rand 6,17 0,76 3 8,58 3,26 3 East Rand 7,25 0,76 6 8,92 2,11 6 Far East Rand 6,25 0,50 4 8,50 2,52 4 Pretoria 7,33 0, ,00 1,00 3 Polokwane 11,50 6, ,75 5,30 2 Nelspruit 4,50-1 5,00-1 Durban 10,25 2, ,00-1 Cape Peninsula 6,07 2,28 7 8,92 3,14 6 Bloemfontein 9,50-1 7,20-1 Notes: The operating expenses are estimates for the past 12 months and are as per our expert panellists in the various cities. The following items are included: stand-alone buildings: rates and taxes and insurance (incl. Sasria) and park buildings: as above, plus security, security lighting, landscaping and management.

110 Rode's Report 2015:2 86 Industrial stand values Chapter 8: Industrial stand values Stand values in Durban and Cape Town showing decent growth Written by John S. Lottering In the first quarter of 2015, the market values of serviced and level industrial stands in Durban and Cape Town were able to show respectable growth. read too much into this spurt as it could be a temporary phenomenon. Durban s upward trend line, on the other hand, seems confirmed. 2,000 1,500 1,000 Nominal industrial stand values (1.000-m² stands) Smoothed 1, Real industrial stand values (1.000-m² stands) 2005 rands 500 R/m² (log scale) R/m² (log scale) Cape Peninsula 100 Durban East Rand Central Witwatersrand Deflated by BER BCI (2005=100) Smoothed Cape Peninsula Durban East Rand Central Witwatersrand Source of data: Rode's Time Series Source of data: Rode's Time Series When compared to a year ago, stand values in Durban and Cape Town grew by 8% and 9% respectively. This is compared to other large industrial conurbations such as the Central Witwatersrand (+1%) and the East Rand (-1%) where the performance of stand values was less impressive. We estimated building costs to have shown yearly growth of about 7% in the first quarter of This implies that in Durban and Cape Town stand values have also shown real growth. In theory, rising stand values imply that market rentals have been rising, as land values are a residual item in a developer s viability study. In the case of the Cape Peninsula, and with reference to the second graph, the reader should not yet Until there is a significant turnaround in the performances of the manufacturing and retail sec-tors, strong growth in industrial market rentals cannot be expected. And given the fact that stand values are leveraged by industrial rentals, a robust recovery in the growth in the former can also not be expected. The remainder of this chapter includes market values for level, serviced stands in named industrial townships. The industrialland-value tables contain regression parameters in order to allow readers to interpolate land values for area sizes other than those given in the tables. This is necessary

111 Rode's Report 2015:2 87 Industrial stand values because the relationship between price and square meterage is not linear. This concludes our chapter on industrial stand values. For more details on how to use these equations, refer to Annexure 3 (annexure-page XII). PS: If you do not understand a term used in this article, please consult the Glossary (Annexure 1)

112 Rode's Report 2015:2 88 Industrial stand values Table 8.1 Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Central Witwatersrand Area size in m² Vacancy grade a b r Cambridge Park ,0 7,691-0,081-0,98 Wynberg Proper ,993-0,025-0,92 Strijdom Park ,0 7,727-0,118-0,99 Kya Sand ,0 6,764-0,038-0,85 Clayville/Olifantsfontein ,0 8,162-0,209-0,30 Chloorkop ,0 6,730-0,033-0,95 Amalgam ,0 7,752-0,089-0,86 Crown Mines ,0 7,549-0,046-1,00 Industria ,0 6,774-0,033-0,95 Booysens/Booysens Reserve/Ophirton ,0 6,720-0,024-0,64 Village Main/Village Deep/New Centre ,0 6,802-0,048-0,97 Benrose ,8 6,690-0,023-0,65 Steeledale/Electron/Tulisa Park ,5 6,841-0,038-0,94 Aeroton ,0 7,312-0,056-0,99 Devland/Nancefield ,712-0,094-0,83 Cleveland/Heriotdale ,931-0,048-0,92 Newlands/Martindale ,568-0,219-0,96 Kew/Wynberg East ,0 6,601-0,007-0,76 Bramley View/Lombardy West ,0 5,959 0,000 0,00 Marlboro ,0 6,051-0,024-0,93 Halfway House: hi-tech strip ,0 6,872-0,019-0,91 Halfway House: Richards Drive ,0 6,810-0,018-0,90 Commercia ,0 6,708-0,037-0,95 Kramerville/Eastgate Ext12 & Ext ,0 7,672-0,014-0,92 Centurion ,0 7,358-0,050-0,92

113 Rode's Report 2015:2 89 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Linbro Park ,0 7,579-0,046-0,98 Wesco Park/Eastgate Ext3, Ext11, Ext6, Ext8/Malboro North (New) City Deep ,5 6,828-0,015-0,93 North Riding , Samrand Centurion ,0 7,109-0,051-0,95 Barbeque Downs ,0 7,172-0,043-0,92 Selby Ext 12/13/15/19/20/24/City West ,0 7,117-0,045-0,88 Selby Ext 5/10/14/ ,0 6,845-0,034-0,89 Selby Ext ,7 6,841-0,031-0,85 Selby Ext 3/4/ ,0 6,364 0,021 0,66 Denver (Old) ,0 6,449-0,029-0,94 Denver (New) ,3 6,872-0,072-0,82 Kyalami Business Park ,0 7,348-0,029-0,96 Reuven Selby (Old)/Selby Ext2/Park Central ,8 6,651-0,014-0,62 Robertsham ,0 6,997-0,030-0,94 Fordsburg/Mayfair Central Witwatersrand ,2 West Rand Lea Glen ,2 7,048-0,050-0,96 Honeydew X19, 20, 21 & ,0 7,476-0,078-0,99 Stormill ,0 7,019-0,037-0,95 Chamdor ,0 6,678-0,060-0,83 Factoria ,0 6,788-0,070-0,96 Randfontein: Delporton/Aureus ,0 6,811-0,068-0,76 Boltonia ,0 7,046-0,117-0,92

114 Rode's Report 2015:2 90 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Roodepoort: Technikon/Manufacta , Industria North ,5 6,857-0,033-0,96 Robertville ,8 6,885-0,027-0,91 Laserpark ,902-0,031-0,96 West Rand ,1 East Rand Elandsfontein ,0 7,275-0,074-0,80 Tunney/Greenhills ,0 7,792-0,088-0,92 Henville ,0 7,129-0,044-0,76 Meadowbrook/Wilbart ,0 7,241-0,062-0,92 Sunnyrock ,0 7,362-0,055-0,91 Rustivia/Activia Park , Eastleigh , Sebenza Ext ,0 6,863-0,024-0,76 Spartan Ext 16 (Sebenza Link) + Ext1,3, ,3 7,704-0,117-0,99 Isando ,5 7,439-0,081-0,96 Isando ,384-0,072-0,91 Jet Park ,4 7,044-0,020-0,62 Alrode & Xs ,0 6,285 0,017 0,51 Alrode South ,0 6,232-0,034-0,92 Alberton ,811-0,077-0,95 Aeroport/Spartan Ext ,0 7,999-0,129-0,99 Delville Roodekop ,8 6,758-0,086-0,98 Wadeville: Industrial zoning ,3 6,750-0,069-0,98

115 Rode's Report 2015:2 91 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Route 24/Meadowdale ,0 8,073-0,131-0,96 Germiston S/ Industries E ,5 6,759-0,091-0,92 Driehoek/Industries W ,0 7,020-0,070-0,93 Knights ,0 6,371-0,046-0,91 Spartan Proper ,0 6,933-0,030-0,96 Founders View ,0 7,773-0,104-0,89 Longmeadow ,8 7,904-0,089-0,94 Pomona/Kempton Park ,2 6,997-0,033-0,99 East Rand ,4 Far East Rand Boksburg North & South ,0 6,977-0,043-0,92 Benoni ,0 6,725-0,050-0,96 New Era/Vulcania ,0 7,046-0,117-0,92 Nuffield ,0 7,046-0,117-0,92 Fulcrum ,0 7,046-0,117-0,92 Apex ,0 6,756-0,028-0,76 Labore Brakpan ,0 6,489-0,070-0,92 Morehill Ext 8 Benoni Far East Rand ,9 Pretoria Mitchell St ,0 6,833-0,084-0,76 Pretoria Industrial Township ,0 6,833-0,084-0,76 Koedoespoort Waltloo/Despatch ,5 6,811-0,026-0,76 Silverton/Silvertondale ,0 6,894-0,039-0,53 Samcor ,0 6,877-0,036-0,92 Sunderland Ridge , Hermanstad ,0 7,203-0,134-0,76

116 Rode's Report 2015:2 92 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy Grade a b r Kirkney ,0 7,203-0,134-0,76 Hennopspark X15 & X , Gateway ,5 7,316-0,021-0,92 Lyttleton Manor X4/X , Pretoria North Silvertondale X ,0 6,756-0,028-0,76 Brits Klerksoord , Rosslyn ,0 7,076-0,099-0,85 Pretoria ,2 Polokwane Lebowakgomo Superbia Industria Ladine Futura Laboria Magna Via Seshego Polokwane Nelspruit Nelspruit East Nelspruit West Rocky's Drift ,778-0,065-0,96 Riverside Park ,472-0,049-0,88 Nelspruit

117 Rode's Report 2015:2 93 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Durban Springfield Park , Mayville Phoenix ,254-0,108-0,76 North Coast Rd/Briardene Briardene Industrial Park , Umgeni Rd/Stamford Hill , Umbilo/Sydney Rd/Gale St , Jacobs , Mobeni Prospecton Ithala Industrial Estate Pinetown Central , New Germany , Kwa Debeka Industrial Park Isipingo ,144-0,117-0,92 Rossburgh/South Coast Rd Edwin Swales Drive , Glen Anil , BrickfieldRd ,0 8,144-0,117-0,92 Verulam , Canelands , Tongaat New Westmead/Mahogany ,0 7,189 0,031 0,92 Westmead , Mariann Park/Southmead ,

118 Rode's Report 2015:2 94 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Maxmead , Ringroad Industrial Park Avoca/Red Hill/Northgate Falcon Park River Horse Valley Business Estate , Mount Edgecombe , Umbogintwini/Southgate ,987 0,122 0,92 Southgate Industrial Park , Hibiscus Industrial Park Umgeni Park , Hammersdale ,0 7,860-0,245-0,95 Cato Ridge ,0 6,721-0,046-0,92 Durban ,3 Cape Peninsula Viking Place Glosderry Montague Gardens ,5 7,489 0,030 0,64 Paarden Eiland/Metro ,0 7,720-0,027-0,63 Marconi Beam ,893-0,040-0,76 Killarney Gardens ,138-0,117-0,95 Racing Park ,0 7,352-0,067-0,96 Atlantis ,000 - Woodstock/Salt River/Observatory ,0 8,611-0,141-0,95 Athlone 1 & ,0 9,218-0,279-0,99 Landsdowne Nerissa

119 Rode's Report 2015:2 95 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Sand Industria Ottery Hillstar Ottery Sunset Diep River Elfindale Monwood/Philippi ,0 7,088-0,060-0,95 Retreat/Steenberg Capricon Park Maitland ,0 7,216 0,009 0,76 Ndabeni ,0 7,464-0,008-0,76 Airport ,5 8,096-0,088-0,99 Epping 1 & ,0 8,142-0,092-0,89 WP Park ,0 8,270-0,100-0,99 Elsies River (excl. Central Park) ,0 7,412-0,072-0,93 Parow Beaconvale ,0 8,033-0,115-0,99 Tygerberg Business Park , Parow Industria ,7 7,547-0,038-0,74 Parow East ,0 7,873-0,061-0,96 Bellville Oakdale Bellville Stikland/Kaymor ,3 7,226 0,004 0,39 Bellville Triangle ,5 7,232-0,022-0,66 Bellville South/Sacks Circle ,0 7,432-0,058-0,95 Kraaifontein ,0 7,249-0,052-1,00 Brackenfell Industria ,7 7,841-0,089-0,88

120 Rode's Report 2015:2 96 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Vacancy grade a b r Everite Brackenfell ,203 0,004 0,05 Kuils River ,664-0,086-0,86 Blackheath ,3 7,706-0,148-0,99 Saxonburg Industrial Park ,0 7,788-0,080-0,91 Okavango ,0 7,818-0,058-0,76 Firgrove The Interchange (Somerset West) , Strand Halt , Broadlands , Cape Peninsula ,0 Port Elizabeth Deal Party ,562-0,131-0,95 North End ,444-0,219-0,99 Korsten/Neave/Sidwell/Sydenham ,826-0,135-0,96 South End Walmer ,709-0,234-0,96 Uitenhage: Volkswagen area/nmblp ,869-0,131-0,95 Uitenhage: Hella/Kruisrivier ,370-0,151-0,92 Struandale ,203-0,124-0,92 Markman Township ,383-0,096-0,92 Perseverance ,548-0,062-0,92 Walmer ,106-0,288-1,00 Greenbushes ,436-0,044-0,76 Fairview ,106-0,288-1,00 Port Elizabeth

121 Rode's Report 2015:2 97 Industrial stand values Table 8.1 (continued) Mean market values for serviced and level industrial stands in quarter 2015: (R/m² excl VAT) Area size in m² Vacancy Grade a b r Bloemfontein Hilton ,0 7,624-0,249-0,87 East End ,0 7,848-0,259-0,96 Harvey Road Old Industrial ,0 6,924-0,185-0,99 Hamilton: Mill St ,0 7,677-0,312-0,84 Hamilton: G Lubbe St ,0 8,329-0,421-0,90 Estoir ,331-0,162-0,92 Bloemfontein ,4

122 Rode's Report 2015:2 98 Industrial stand values Table 8.2 Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Central Witwatersrand Cambridge Park 353,55 247,49 176,78 35,36 AP, QU Wynberg Proper 106,07 159,10 176,78 183,85 AP, QU Strijdom Park 0,00 17,68 70,71 0,00 AP, QU Kya Sand 44,81 52,92 40,02 90,60 AP, BR, QU Clayville/Olifantsfontein 50,00 75,14 67,82 71,11 AP, BR, MR, QU Chloorkop 56,57 56,57 46,19 28,87 AP, QU Amalgam 225,46 133,84 105,77 216,51 AP, QU, RO Crown Mines 160,73 217,94 225,46 250,00 AP, BR, QU Industria 141,42 176,78 212,13 212,13 AP, QU Booysens/Booysens Reserve/Ophirton 118,15 103,08 70,71 28,87 AP, BR, QU, RO Village Main/Village Deep/New Centre 122,47 94,37 75,00 76,38 AP, BR, QU, RO Benrose 149,30 149,30 110,87 115,47 AP, BR, QU, RO Steeledale/Electron/Tulisa Park 127,54 133,29 94,65 115,47 AP, BR, QU, RO Aeroton 160,73 202,07 104,08 86,60 AP, QU, RO Devland/Nancefield 17,68 17,68 0,00 35,36 AP, QU Cleveland/Heriotdale 147,31 147,31 115,47 115,47 AP, QU, RO Newlands/Martindale AP Kew/Wynberg East 70,71 70,71 70,71 53,03 AP, QU Bramley View/Lombardy West 0,00 35,36 35,36 0,00 AP, QU Marlboro 56,57 70,71 70,71 88,39 AP, QU Halfway House: hi-tech strip 53,03 53,03 35,36 70,71 AP, QU

123 Rode's Report 2015:2 99 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Halfway House: Richards Drive 0,00 17,68 17,68 17,68 AP, QU Commercia 106,07 106,07 70,71 106,07 AP, QU Kramerville/Eastgate Ext12 & Ext13 777,82 777,82 848,53 848,53 AP, QU Centurion 141,42 141,42 0,00 0,00 AP, QU Linbro Park 106,07 176,78 282,84 300,52 AP, QU Wesco Park/Eastgate Ext3, Ext11, Ext6, QU Ext8/Malboro North (New) City Deep 76,38 57,74 57,74 0,00 BM, QU, RO North Riding AP Samrand Centurion 0,00 0,00 28,87 28,87 AP, BR, MR, QU Barbeque Downs 17,68 17,68 53,03 53,03 AP, QU Selby Ext 12/13/15/19/20/24/City West 370,53 327,87 295,45 230,94 AP, BR, QU, RO Selby Ext 5/10/14/18 158,11 119,02 103,08 132,29 AP, BR, QU, RO Selby Ext ,30 110,87 91,29 104,08 AP, BR, QU, RO Selby Ext 3/4/6 193,11 179,70 85,39 76,38 AP, BR, QU, RO Denver (Old) 193,11 193,11 209,66 187,64 AP, BR, QU, RO Denver (New) 185,11 185,11 174,81 238,48 AP, BR, QU, RO Kyalami Business Park 318,20 353, AP, QU Reuven 35,36 0,00 53,03 - BR, QU Selby (Old)/Selby Ext2/Park Central 118,15 103,08 104,08 94,65 AP, BR, QU, RO Robertsham 17,68 35,36 53,03 106,07 AP, QU Fordsburg/Mayfair

124 Rode's Report 2015:2 100 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors West Rand Lea Glen 100,00 100,00 176,40 144,34 AP, QU, RO Honeydew X19, 20, 21 & 22 35,36 106,07 176,78 141,42 AP, QU Stormill 40,41 40,41 98,49 65,57 AP, QU, RO Chamdor 14,14 14,14 0,00 17,68 AP, QU Factoria 212,13 247,49 247,49 247,49 AP, QU Randfontein: Delporton/Aureus QU Boltonia AP Roodepoort: Technikon/Manufacta AP Industria North 141,42 141,42 190,92 212,13 AP, QU Robertville 120,97 118,15 104,08 104,08 AP, QU, RO Laserpark 282,84 265,17 212,13 212,13 AV, QU East Rand Elandsfontein 53,03 53,03 35,36 166,46 AP, QU, RO Tunney/Greenhills 282,84 282,84 141,42 141,42 AP, QU Henville 141,42 141,42 141,42 0,00 AP, QU, RO Meadowbrook/Wilbart 141,42 141,42 0,00 0,00 AP, QU Sunnyrock 141,42 0,00 0,00 70,71 AP, QU Rustivia/Activia Park 0,00 0,00 0,00 0,00 AP, QU Eastleigh 70,71 70,71 70,71 70,71 AP, QU Sebenza Ext 14 0,00 0,00 0,00 70,71 AP, QU Spartan Ext 16 (Sebenza Link) + Ext1,3, ,29 152,75 AP, QU, RO

125 Rode's Report 2015:2 101 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Isando 70,71 70,71 70,71 0,00 AP, QU Isando 3 70,71 70,71 0,00 - AP, QU Jet Park 173,21 180,28 76,38 35,36 AP, BR, QU Alrode & Xs ,41 65,57 AP, QU, RO Alrode South 70,71 70,71 35,36 35,36 AP, QU Alberton ,68 - AP, QU Aeroport/Spartan Ext 2 424,26 353,55 282,84 141,42 AP, QU Delville AP, QU, RO Roodekop 108,97 52,04 66,14 28,87 AP, QU, RO Wadeville: Industrial zoning 115,47 100,00 76,38 86,60 AP, MR, QU, RO Route 24/Meadowdale 47,87 51,54 44,82 68,84 AP, QU, RO Germiston S/Industries E 353,55 353,55 152,75 70,71 AP, QU, RO Driehoek/Industries W 50,00 57,74 76,38 38,19 AP, QU, RO Knights 25,00 25,00 28,87 66,14 AP, QU, RO Spartan Proper 144,34 86,60 86,60 57,74 AP, QU Founders View 106,07 106,07 88,39 106,07 AP, QU Longmeadow 424,26 282,84 247,49 141,42 AP, BR, QU Pomona/Kempton Park 106,07 106,07 282,84 57,74 AP, QU Far East Rand Boksburg North & South 123,74 123,74 176,78 176,78 AP, QU Benoni 28,28 28,28 7,07 28,28 AP, QU New Era/Vulcania AP

126 Rode's Report 2015:2 102 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Nuffield AP Fulcrum AP Apex AP Labore Brakpan AP Morehill Ext 8 Benoni Pretoria Mitchell St 0,00 0,00 0,00 70,71 AI Pretoria Industrial Township 0,00 0,00 0,00 70,71 AI Koedoespoort Waltloo/Despatch 0,00 0,00 0,00 0,00 AI, MAS Silverton/Silvertondale 35,36 132,29 35,36 - AI, AP, MAS Samcor AI Sunderland Ridge AP Hermanstad AP Kirkney AP Hennopspark X15 & X AP Gateway 141,42 141,42 212,13 212,13 AP, MAS Lyttleton Manor X4/X AP Pretoria North MAS Silvertondale X1 0,00 0, AI, AP Brits

127 Rode's Report 2015:2 103 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Klerksoord AP Rosslyn 35,36 35,36 0,00 70,71 AI, AP Polokwane Lebowakgomo Superbia Industria ES Ladine ES Futura Laboria Magna Via ES Seshego Nelspruit Nelspruit East Nelspruit West Rocky's Drift PM Riverside Park PM Durban Springfield Park ML Mayville ML Phoenix ML North Coast Rd/Briardene ML Briardene Industrial Park ML Umgeni Rd/Stamford Hill ML Umbilo/Sydney Rd/Gale St ML

128 Rode's Report 2015:2 104 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Jacobs ML Mobeni ML Prospecton ML Ithala Industrial Estate Pinetown Central 565,69 565,69 565,69 565,69 ML, QP New Germany 424,26 424,26 424,26 424,26 ML, QP Kwa Debeka Industrial Park Isipingo ML Rossburgh/South Coast Rd ML Edwin Swales Drive ML Glen Anil ML Brickfield Rd ML Verulam ML Canelands ML Tongaat ML New Westmead/Mahogany 494,97 494,97 353,55 353,55 ML, QP Westmead 636,40 636,40 636,40 636,40 ML, QP Mariann Park/Southmead 0,00 0,00 0,00 0,00 ML, QP Maxmead 565,69 565,69 565,69 565,69 ML, QP Ringroad Industrial Park Avoca/Red Hill/Northgate ML Falcon Park River Horse Valley Business Estate 0,00 0,00 0,00 0,00 ML, QP Contributors

129 Rode's Report 2015:2 105 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Mount Edgecombe ML Umbogintwini/Southgate ML Southgate Industrial Park ML Hibiscus Industrial Park Umgeni Park ML Hammersdale - - 0,00 35,36 ML, QP Cato Ridge ,71 70,71 ML, QP Cape Peninsula Viking Place Glosderry Paarden Eiland/Metro 414,73 472,23 355,90 360,56 AN, AP, GB, PL Montague Gardens 115,47 251,66 251,66 0,00 AN, DN, GB Marconi Beam GB Killarney Gardens 40,00 100,00 264,58 424,26 AN, AP, DN, GB Racing Park 163,30 103,08 95,74 70,71 AN, AP, DN, GB Atlantis AN Woodstock/Salt River/Observatory GB Athlone 1 & AN, AP Landsdowne Nerissa AP Sand Industria Ottery Hillstar Ottery Sunset

130 Rode's Report 2015:2 106 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Diep River Elfindale Monwood/Philippi AP Retreat/ Steenberg Capricorn Park GB Maitland 115,47 351,19 351,19 351,19 AN, AP, GB Ndabeni 288,68 321,46 321,46 321,46 AN, AP, GB Airport 163,30 129,10 170,78 70,71 AN, AP, DN, GB Epping 1 & 2 353,55 353,55 212,13 141,42 AN, AP, GB WP Park 115,47 115,47 115,47 70,71 AN, AP, GB Elsies River (excl. Central Park) 404,15 230,94 176,78 176,78 AN, AP, GB Parow Beaconvale 419,32 295,45 238,05 115,47 AN, AP, DN, GB Tygerberg Business Park 70,71 212,13 251,66 - AQ, DN, GB Parow Industria 378,59 378,59 355,90 230,94 AN, AP, CA, DN, GB Parow East 424,26 424,26 353,55 - AP, GB Bellville Oakdale Bellville Stikland/Kaymor 109,54 141,42 115,47 115,47 AN, AP, AQ, DN, GB Bellville Triangle 268,87 265,75 106,07 141,42 AN, AP, DN, GB Bellville South/Sacks Circle 95,74 81,65 0,00 0,00 AN, AP, GB, PL Kraaifontein 202,07 180,28 132,29 106,07 AN, DN, WD Brackenfell Industria 122,47 141,42 131,50 106,07 AN, AQ, DN, GB, WD

131 Rode's Report 2015:2 107 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Everite Brackenfell 57,74 152,75 353,55 - AN, DN, PL Kuils River 305,51 278,39 212,13 - AN, GB, WD Blackheath 181,66 152,48 124,50 76,38 AN, AQ, DN, GB, WD Saxonburg Industrial Park 151,66 188,41 85,39 176,78 AN, AQ, DN, GB, WD Okavango 353, AN, WD Firgrove The Interchange (Somerset West) Strand Halt Broadlands Port Elizabeth Deal Party QV North End QV Korsten/Neave/Sidwell/Sydenham QV South End Walmer QV Uitenhage: Volkswagen area/nmblp QV Uitenhage: Hella/Kruisrivier QV Struandale QV Markman Township QV Perseverance QV Walmer QV Greenbushes QV Fairview QV

132 Rode's Report 2015:2 108 Industrial stand values Table 8.2 (continued) Standard deviation from mean market values for serviced and level industrial stands in quarter 2015:1 (R/m² excl VAT) Area size in m² Contributors Bloemfontein Hilton EK East End EK Harvey Road Old Industrial EK Hamilton: Mill St EK Hamilton: G Lubbe St EK Estoir EK

133 109 Flats market Chapter 9: Flats market Flat rentals are recovering John S. Lottering The growth in flat rentals is slowly accelerating and is now at more or less the consumer-inflation rate. However, given the number of households that remain financially stretched, a strong and sustained recovery in flat rentals cannot, for now, be expected. When one zooms in on the performances at the regional level, one can also see respectable inflation beating growth of 7% in Cape Town, Durban and Port Elizabeth. Elsewhere, in Johannesburg, Pretoria and Bloemfontein, growth in flat rentals ranged between 2% and 5%. Growth (%; y-o-y) Yearly growth in national flat rentals I II III IV I II III IV I II III IV I II III IV I II III IV I With reference to the second graph, note how Johannesburg flat rentals are falling behind the rest of the country, and note the spurt in Cape Town rentals, starting in All available indicators point to Cape Town s economy outperforming the rest of the country, especially Johannesburg s. No doubt it is because the Western Cape s economy is well diversified and less dependent on commodity prices Source of data: Rode's Time Series In the first quarter of 2015, national market flat rentals again gained a bit of momentum as they grew at a yearly rate of roughly 5%. Of course, considering the fact that consumer inflation was roughly 4% over the same period, this implies that flat rentals have shown some real growth. Nationally, a bad omen for economic, employment and income growth prospects must be household sentiment levels that are falling through the roof. When the impact of these levels on the demand for residential space to rent is considered, then the current slight upward momentum in the growth in flat rentals seems unsustainable. 200 Movement in nominal flat rentals (all sizes; standard units) Income yields of flats 180 Index (2005=100) Cape Town Durban Johannesburg Pretoria Source of data: Rode's Time Series Table 9.1 summarizes the gross-income yields of flats. Net-income yields are the residential-property equivalent of nonresidential property s capitalization rates. As a rule of thumb, to convert gross income yields to net, deduct 1,5 percentage points from the gross yield. This deduction takes into account operating expenses such

134 110 Flats market as insurance and maintenance, as well as assessment rates. The flat-rental data tends to be erratic. Therefore, all rentals in the accompanying graphs have been smoothed, and readers are advised to focus on the overall trends. This section is concluded by the flat-rental tables that follow. The previous graphs give only a very broad picture of trends in the flats market, since the rentals reflected are averages of many different suburbs within the particular metropolitan areas. Keep in mind that all analyses were done on standard-quality flat units. Readers re-quiring more details are directed to the many tables, starting on p. 113, of specific rental levels in the various suburbs for the various grades of flats.

135 111 Flats market Table 9.1 Gross-income yields (%): Flats Standard quality Quarter 2015:1 1- Bachelor Bedroom 2- Bedroom 3- Bedroom Eastern Cape Port Elizabeth - Summerstrand /Humewood /South End 10,3 5,6 6,0 6,4 - Walmer 7,2 7,6 9,0 11,2 - Central / North End 17,5 15,7 14,2 13,7 - Newton Park 12,7 11,4 9,2 9,7 - Kabega 10,6 17,1 13,8 10,5 - Algoa Park 7,7 14,4 12,0 12,0 Uitenhage - Uitenhage 9,4 10,0 9,1 8,8 East London - Summerstrand /Humewood /South End 9,2 9,3 11,1 10,7 - Walmer 9,3 9,1 10,7 12,7 - Central / North End 10,3 11,3 10,2 12,2 - Newton Park 12,8 10,1 10,5 13,1 Free State Bloemfontein - Bloemfontein CBD 22,2 10,5 8,2 - - Westdene - 8,7 12,6 - - Willows 14,3 9,2 8,7 14,1 - Navalsig - 11,5 9,4 - - Arboretum - 10,3 9,6 - Gauteng - East Rand Kempton Park - Croydon - - 8,7 9,4 Boksburg - Ravenswood - - 8,0 8,9

136 112 Flats market Table 9.1 (continued) Gross-income yields (%): Flats Standard quality Quarter 2015:1 1- Bachelor Bedroom 2- Bedroom 3- Bedroom Alberton - Verwoerd Park ,0 10,6 Benoni - Lakefield ,2 9,8 - Westdene - - 9,2 10,6 - Farrarmere - - 7,9 8,1 - Morehill ,3 9,4 - Rynfield - - 9,8 10,7 - Northmead - - 8,2 10,7 - Crystal Park - 9,2 9,2 8,6 - Western Extension - 10,6 10,6 9,7 - Centurion - Pierre van Ryneveld - - 7,9 7,5 - Kloofsig / Lyttelton Manor / Doringkloof 9,3 9,6 7,8 9,8 - Highveld and Extensions - - 9,0 7,8 - Clubviews/Eldoraigne ,6 - - Rooihuiskraal / The Reeds - - 8,9 8,8 - Valhalla - - 7,8 8,9 Western Cape - Tyger Valley / Durbanville 11,1 6,9 7,2 7,9 - Grassy Park 10,0 12,0 11,7 12,2 - Muizenberg / Kalk Bay / Fish Hoek 9,2 10,0 9,5 14,2

137 113 Flats market Table 9.2 Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Me an S Mean SD Mean SD contributors Johannesburg average City (incl. Joubert Park/Braamfontein/ Hillbrow/Berea/Parktown) Yeoville/Bellevue/Highlands Jeppestown/Fordsburg/Malvern/ Kensington/Lorentzville North-Eastern Suburbs (incl. Kew/ Cyrildene/Fairmount/Waverley/ Lyndhurst/Bramley/Savoy) Maraisburg/Crosby/Brixton Meldene (Melville, Westdene, Auckland Park) Rosebank/Killarney/Illovo Greenside/Victory Park/ Emmarentia/ Linden/Parkview/ Parkhurst Randburg: Ferndale/Fontainebleau Randburg & Suburbs Windsor: East/West Craighall/Craighall Park Sandton: North & Far North (incl. Bryanston /Fourways/Lonehill/Douglasdale) Sandton: South to Central (incl. Sandown/Rivonia/Morningside/ R2.653 R2.950 R3.250 R3.439 R4.164 R5.104 R71 R R3.400 R0 R R4.050 R212 R R R R R PU R R3.500 R2.525 R2.517 R R530 R R4.500 R318 R3.400 R225 R3.117 R495 R R354 R5.000 R0 R R5.500 R424 R4.050 R275 R CI, CQ, PU - PU - R354 JL, RF, TR R0 R JL, TR R636 R4.950 R1.202 BS, JL, NH R58 R4.900 R1.131 BS, JL, NH, TR R636 R4.150 R495 R4.750 R354 BS, JL R R R R BS Sunninghill/Kyalami)

138 114 Flats market Table 9.2 (continued) Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors Bedfordview - - R R TR Old South (incl. Rosettenville/ Turffontein/Kenilworth) R R R PU New South (incl. Southdale/Mondeor/ Glenvista/Linmeyer) R R R R DV Germiston average Primrose R R R R PH Germiston C & S R R R R PH Germiston South - suburbs Elsburg - - R R PH Pretoria average R2.583 R2.950 R3.583 R4.125 Akasia R2.700 R141 R2.900 R141 R3.550 R71 R3.850 R71 HK, TR Pretoria North/Dorandia/Florauna R2.333 R153 R2.533 R153 R3.167 R208 R4.000 R0 CI, HK, TR Annlin/Wonderboom/Sinoville/Montana R2.725 R393 R3.100 R265 R3.500 R141 R4.700 R141 CI, HK, TR Die Moot/Queenswood R2.767 R58 R3.000 R0 R3.350 R150 R3.750 R354 CI, HK, TR Eastlynne/Eersterust R2.000 R0 R2.350 R71 R2.750 R354 R3.300 R283 HK, TR Silverton/Meyerspark/La Montagne R2.450 R71 R2.933 R115 R3.733 R58 R4.050 R71 CI, HK, TR Eastern suburbs (Menlo Park/Ashlea Gardens/all Lynnwoods/Die Wilgers/ Faerie Glen/Garsfontein/Pretoriuspark/ Constantia/Waterkloof Glen/ Erasmuskloof) R2.950 R212 R3.200 R141 R4.200 R0 R5.150 R354 HK, TR Groenkloof/Brooklyn/most Waterkloofs/ Monumentpark/Erasmusrand R3.400 R566 R3.775 R601 R4.650 R212 R5.250 R212 HK, TR

139 115 Flats market Table 9.2 (continued) Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors South-eastern suburbs (Elarduspark/ Wingate Park/Moreletapark/Pierre van Ryneveld/Waterkloof) Sunnyside Arcadia Pretoria Central Pretoria West Kwaggasrand/West Park Elandspoort/Danville Atteridgeville/Laudium Centurion Average Pierre van Ryneveld Irene Kloofsig/ Lyttleton Manor/ Doringkloof/ Zwartkop Highveld and Extensions Clubviews/ Eldoraigne/ Wierda Park/ Cranebrook/ Bronberrick/ Rooihuiskraal North R3.150 R2.588 R2.775 R2.625 R2.350 R2.400 R1.950 R495 R3.550 R317 R3.238 R492 R3.250 R544 R3.213 R50 R2.717 R100 R2.667 R212 R2.250 R212 R4.200 R939 R4.138 R686 R4.038 R841 R3.963 R58 R3.317 R58 R3.133 R71 R2.700 R141 R4.650 R945 R4.133 R499 R4.283 R599 R4.150 R126 R3.983 R208 R3.867 R283 R Rooihuiskraal/ The Reeds Heuweloord Valhalla Durban average R3.033 R3.618 R4.406 R5.251 Upper highway: Kloof/Hillcrest R R R R WK R212 HK, TR R231 CI, HK, PU, TR R126 CI, HK, PU, TR R218 CI, HK, PU, TR R189 CI, HK, TR R153 CI, HK, TR R424 HK, TR

140 116 Flats market Pinetown area/queensburgh Westville area Central City (incl. Lower Berea) Berea / Morningside / Glenwood South and North Beach Durban North/La Lucia/Umhlanga North (Dolphin) Coast/Ballito Montclaire/Yellowwood Park Bluff area/durban South Durban South/Amanzimtoti/Warner Beach area Cape Town average Camps Bay/Clifton/Bantry Bay Sea Point Green Point/Three Anchor Bay City Bowl (excluding Higgovale) City Centre Waterfront Rondebosch/Rosebank/Claremont Kenilworth/Wynberg/Plumstead Muizenberg/ Kalk Bay/ Fish Hoek Hout Bay Milnerton/Sanddrift Tableview/ Parklands Table 9.2 (continued) Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors R2.675 R35 R3.500 R0 R4.2 R35 R TR, WK R R R R WK R2.950 R212 R3.250 R71 R4. R495 R TR, WK R3.300 R424 R3.950 R636 R4 R247 R5.750 R354 TR, WK R3.150 R212 R3.850 R636 R4 R318 R5.925 R247 TR, WK R3.025 R389 R3.625 R318 R4 R601 R TR, WK R R3.850 R495 R4 R742 R5.000 R707 TR, WK TR, WK R R3.650 R212 R3.975 R318 R R3.170 R3.971 R5.030 R6.270 R4.500 R0 R6.150 R212 R7.400 R566 R8.100 R141 SQ, TR R4.800 R200 R5.800 R200 R7.500 R624 R TR R4.467 R907 R5.933 R981 R7.033 R1.242 R9.000 R707 PF, SQ, TR R4.467 R643 R5.000 R490 R6.288 R968 R9.167 R289 JL, SQ, TR R4.200 R1.015 R5.750 R776 R R8.250 R354 SQ, TR R4.000 R458 R5.367 R1185 R6.917 R1.239 R8.667 R1.041 PF, SQ, TR R3.100 R173 R4.633 R635 R5.633 R1.002 R6.550 R636 PF, SQ, TR R3.450 R420 R4.250 R507 R4.833 R577 R6.467 R1.762 SQ, TR - - R R PF R3.000 R0 R3.550 R332 R4.325 R568 R5.500 R0 LA, PF, RS, TR R3.033 R58 R3.600 R361 R4.200 R608 R5.733 R1.966 LA, PF, RS, TR

141 117 Flats market Blouberg/Melkbos Athlone Mitchell's Plain Pinelands Brooklyn/Rugby/Maitland Monte Vista/ Goodwood/ Parow/ Bellville Central Tyger Valley area/ Durbanville Brackenfell/ Kuils River Somerset West Strand Gordon's Bay Port Elizabeth average Summerstrand/Humewood/South End Walmer Central/North End Newton Park Westering Kabega Algoa Park East London average Southernwood/Quigney Beach/CBD Berea Amalinda Table 9.2 (continued) Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors R3.100 R141 R3.500 R0 R5.3 R1.202 R5.400 R141 LA, TR R R R TR R R R R TR R3.850 R919 R5.000 R1.4 R6.250 R2.475 R7.800 R3.111 LA, TR R2.950 R477 R3.533 R5 R4.267 R751 R5.100 R1.273 LA, SQ, TR LA, SQ, TR R4.250 R354 R4.467 R1.3 R5.300 R1.311 R6.050 R2.758 R3.167 R1.155 R3.900 R1.3 R4.600 R1.071 R5.600 R1.652 LA, PF, RS, TR R2.533 R850 R2.975 R7 R4.225 R1.471 R5.233 R1.537 LA, PF, RS, TR R2.333 R577 R3.150 R1.6 R4.300 R2.166 R5.667 R2.887 GE, LA, TR R2.175 R350 R2.763 R4 R3.525 R465 R4.833 R289 GE, LA, SQ, TR R1.933 R115 R2.617 R3 R3.267 R379 R4.733 R208 GE, LA, TR R2.507 R2.848 R3.696 R4.607 R3.183 R161 R3.750 R354 R4.833 R577 R6.800 R1.311 SJ, TR, ZB R3.167 R153 R3.200 R424 R4.300 R778 R JP, SJ, TR, ZB R2.450 R354 R2.900 R141 R3.650 R212 R SJ, TR R R R4.100 R424 R SJ, TR R2.350 R212 R2.750 R212 R3.450 R778 R4.050 R1.061 JP, SJ, TR R2.250 R71 R2.700 R283 R3.250 R354 R3.400 R141 SJ, TR R1.800 R283 R2.100 R424 R2.700 R283 R SJ R3.227 R3.621 R4.737 R5.986 R R R R TR R R R R TR R R R R TR

142 118 Flats market Gonubie Park Bloemfontein average Bloemfontein Westdene Willows Navalsig Arboretum Table 9.2 (continued) Flat rentals: standard units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors R3.200 R2.698 R2.300 R2.900 R2.733 R2.850 R R3.800 R3.065 R265 R2.900 R283 R3.000 R153 R2.950 R212 R3.117 R636 R R4.800 R3.925 R200 R3.467 R141 R4.200 R71 R4.000 R597 R3.717 R580 R R6.000 R4.570 R462 R4.067 R0 R4.450 R100 R4.550 R475 R4.633 R173 R TR R643 ED, EK, NR R71 EK, NR R636 EK, NR, MI R321 EK, NR, MI R312 EK, NR, MI

143 119 Flats market Table 9.3 Flat rentals: upmarket units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Me an S Mean SD Mean SD contributors Johannesburg average North-Eastern Suburbs (incl. Kew/ Cyrildene/Fairmount/Waverley/ Lyndhurst/Bramley/Savoy) Maraisburg/Crosby/Brixton Meldene (Melville, Westdene, Auckland Park) Rosebank/Killarney/Illovo Greenside/Victory Park/Emmarentia/Linden/Parkview/ Parkhurst Randburg: Ferndale/Fontainebleau Randburg & Suburbs Windsor: East/West Craighall/Craighall Park Sandton: North & Far North (incl. Bryanston/Fourways/Lonehill/ Douglasdale) R3.019 R4.416 R5.825 R R R TR R R R R JL - - R R R TR R4.175 R460 R5.750 R354 R R JL, TR R4.000 R707 R R5.600 R1.273 R BS, JL, NH, TR R R3.750 R354 R4.650 R71 R5.950 R71 BS, JL, NH, TR R2.300 R424 R3.300 R424 R4.250 R354 R4.900 R141 BS, JL R R5.625 R884 R6.850 R495 R BS, TR Sandton: South to Central (incl. Sandown/Rivonia/Morningside/ Sunninghill/Kyalami) - - R R TR Bedfordview R Old South (incl. Rosettenville/ Turffontein/Kenilworth) New South (incl. Southdale/Mondeor/ Glenvista/Linmeyer) R R2.700 R1.131 R3.400 R1.556 R DV, TR

144 120 Flats market Table 9.3 (continued) Flat rentals: upmarket units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Me an S Mean SD Mean SD contributors Germiston average Primrose Germiston C & S Germiston South - suburbs Elsburg Pretoria average Akasia Pretoria North/Dorandia/Florauna Annlin/Wonderboom/Sinoville/Montana Die Moot/Queenswood Silverton/Meyerspark/La Montagne Eastern suburbs (Menlo Park/Ashlea Gardens/all Lynnwoods/Die Wilgers/ Faerie Glen/Garsfontein/Pretoriuspark/ Constantia/Waterkloof Glen/ Erasmuskloof) Groenkloof/Brooklyn/most Waterkloofs/ Monumentpark/Erasmusrand South-eastern suburbs (Elarduspark/ Wingate Park/Moreletapark/Pierre van Ryneveld/Waterkloof) Sunnyside Arcadia Pretoria Central R2.270 R2.667 R3.304 R R R R PH R R R PH R2.500 R2.700 R3.400 R R R R R TR Pretoria West

145 121 Flats market Table 9.3 (continued) Flat rentals: upmarket units Average rands per month as at quarter 2015:1 Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Broker Mean SD Mean SD Mean SD Mean SD contributors Kwaggasrand/West Park Elandspoort/Danville Atteridgeville/Laudium Sunnyside Centurion Average Pierre van Ryneveld Irene Kloofsig/ Lyttleton Manor/ Doringkloof/ Zwartkop Highveld and Extensions Clubviews/ Eldoraigne/ Wierda Park/ Cranebrook/ Bronberrick/ Rooihuiskraal North Rooikruiskraal/ The Reeds Heuweloord Valhalla Durban average R3.243 R4128 R5.021 R6.794 Upper highway: Kloof/Hillcrest R R R R WK Pinetown area/queensburgh R3.000 R0 R3.725 R177 R4.350 R212 R TR, WK Westville area R R R R WK Central City (incl. Lower Berea) R2.900 R141 R3.525 R318 R4.775 R1.379 R TR, WK Berea / Morningside / Glenwood R3.150 R71 R4.425 R247 R5.400 R566 R7.250 R1.061 TR, WK South and North Beach R3.100 R141 R4.250 R354 R5.475 R742 R TR, WK Durban North/La Lucia/Umhlanga R R R R WK North (Dolphin) Coast/Ballito

146 122 Flats market Table 9.3 (continued) Flat rentals: upmarket units Average rands per month as at quarter 2015:1 Montclaire/Yellowwood Park Bluff area/durban South Durban South/Amanzimtoti/Warner Beach area Cape Town average Camps Bay/Clifton/Bantry Bay Sea Point Green Point/Three Anchor Bay City Bowl (excluding Higgovale) City Centre Waterfront Rondebosch/Rosebank/Claremont Kenilworth/Wynberg/Plumstead Muizenberg/ Kalk Bay/ Fish Hoek Hout Bay Milnerton/Sanddrift Tableview/Parklands Blouberg/Melkbos Athlone Mitchell's Plain Pinelands Brooklyn/Rugby/Maitland Bachelor Mean R3.000 R Bedroom 2-Bedroom 3-Bedroom Broker SD Me an S Mean SD Mean SD contributors - R R R WK - R R R WK R R R R WK R3.736 R4.578 R6.077 R8.090 R5.900 R141 R7.400 R1.273 R9.500 R0 R R0 SQ, TR R R R R2.121 R R5.500 R0 R6.550 R778 R R PF, SQ, TR R5.667 R764 R6.633 R1.106 R9.200 R1.637 R R5.657 JL, SQ, TR R4.950 R636 R6.000 R0 R8.125 R177 R9.750 R1.061 SQ, TR R R R R TR R4.500 R608 R5.117 R664 R7.250 R1.256 R R0 PF, SQ, TR R4.400 R141 R5.425 R601 R6.950 R636 R SQ, TR R4.417 R382 R5.167 R577 R7.233 R643 R8.500 R1.323 SQ, TR R3.525 R320 R4.050 R574 R5.225 R939 R6.750 R1.061 LA, PF, RS, TR R3.388 R295 R4.000 R200 R5.000 R816 R6.667 R764 LA, PF, RS, TR R3.600 R265 R4.400 R141 R6.100 R566 R7.600 R566 LA, PF, TR R R R R TR R R R R TR R3.900 R141 R4.750 R354 R6.250 R354 R7.750 R354 LA, TR R2.983 R29 R3.433 R115 R4.400 R265 R5.400 R173 LA, SQ, TR Monte Vista/Goodwood/Parow/Bellville Central R3.133 R115 R3.683 R388 R4.917 R629 R5.800 R346 LA, SQ, TR

147 123 Flats market Tyger Valley area/durbanville Brackenfell/Kuils River Somerset West Strand Gordon's Bay Port Elizabeth average Summerstrand/Humewood/South End Walmer Central/North End Newton Park Westering Kabega Algoa Park East London average Southernwood/Quigney Beach/CBD Berea Amalinda Gonubie Park Bloemfontein Average Bloemfontein Westdene Willows Navalsig Arboretum Table 9.3 (continued) Flat rentals: upmarket units Average rands per month as at quarter 2015:1 Bachelor Mean 1-Bedroom 2-Bedroom 3-Bedroom Broker SD Mean SD Mean SD Mean SD contributors R3.000 R0 R3.867 R231 R4.963 R403 R7.500 R0 LA, PF, SF, TR R2.533 R58 R2.950 R289 R4.000 R408 R4.750 R354 LA, PF, SF, TR R3.333 R1.041 R4.667 R1.607 R6.000 R1.803 R9.250 R3.889 GE, LA, TR R3.467 R1.266 R4.333 R1.443 R5.667 R1.607 R7.333 R2.021 GE, LA, TR R2.833 R289 R3.500 R0 R4.500 R0 R5.783 R257 GE, LA, TR R2.610 R3.250 R2.975 R4.320 R283 R7.600 R1.493 SJ, ZB R212 R6.250 R1.061 SJ R R R R SJ R2.675 R2.650 R2.600 R1.850 R3.131 R2.600 R3.500 R3.200 R3.300 R3.450 R3.000 R3.450 R3.800 R3.600 R3.700 R3.066 R354 R4.000 R177 R3.800 R318 R3.075 R212 R3.025 R141 R R2.200 R R R R R3.600 R R R R R R4.200 R3.563 R283 R4.700 R0 R4.650 R318 R3.450 R247 R3.500 R177 R R2.500 R R R R R4.600 R R R R R R4.500 R354 R3.800 R0 R3.850 R141 R R3.000 R R R R R4.800 R R R R R R NR - SJ - JP, SJ, TR - SJ - SJ - TR - TR - TR - TR - NR - NR - NR - NR

148 124 House market Chapter 10: House market Growth in house prices slowly losing its momentum John S. Lottering The yearly growth in national house prices is slowly and gradually losing its oomph, which should not come as a surprise as key drivers of house prices are still struggling. After heating up to a yearly growth rate of 10% in the second quarter of 2014, the growth in national house prices has since cooled to 6% in June Interesting is how sharp the deceleration in the monthly (annualized) growth has been. This implies that the cooling in yearly growth rates will continue Growth in national house prices (year-on-year vs month-on-month (annualized)) ourselves in a Greece-like situation overnight. Still-high household debt-todisposable income levels. The ratio of debt-to-disposable income of households has decreased since 2009 but the ratio remains uncomfortably high at 78%. The disproportionate increases in administered prices, which negatively affect affordability. Consumer confidence levels that are sliding fast, which might affect the willingness of households to make substantial financial commitments such as buying a house. Percentage growth growth (y-o-y) growth (m-o-m; annualized) Source of data: Absa; Rode Calculations For now, there remain more factors likely to further dampen the growth in house prices. Consider here: As stated above, there is no doubt whatsoever that economic growth is one of the drivers of house prices. We have demonstrated this empirically over and over again. As a consequence, we would expect the poorer areas in SA to show lower houseprice growth. Poverty can be measured in various ways, but a good enough proxy is the absence of service delivery in the form of a lack of access to piped water or a lack of refuse removal by a municipality. Weak economic activity and its likely damper on growth in employment and disposable income. Also, the public sector s employee-appointment and salary-boosting sprees will come to an end as the fiscus is under severe pressure. If not, we could find We did a study in which we compared the growth in [middle-class] house prices in 2014 with the lack of services in the form of a lack of piped water. More specifically, we correlated the percentage of households with access to piped water with the growth in nominal house prices in The data is by

149 125 House market province. The services statistics are sourced from Stats SA and the house prices are from Absa. The scatter plot which follows, compares for all of the country s provinces the percentage of households with access to piped water to the growth in nominal house prices in Note the robust positive relationship between these variables. In the Western Cape where in 2014, 99% of households had access to piped or tap water, house prices have shown the strongest growth. This is in contrast to the Eastern Cape where only 79% of households had access to piped or tap water and where house prices have shown the lowest growth. It is important to point out that the lack of services acts as a proxy for poverty in general in a province as we measure the growth in middle-class house prices (households that do have these services) with the very poor in the same province (households that may not have these services and that may live in informal settlements). More evidence in support of the link between poverty and middle-class house-prices is provided by the second scatter plot. It shows the strong (positive) correlation between the ratio of households whose refuse is removed by the municipality and the growth in nominal house prices. Note that there is no direct, causal link between a lack of services provision and middle-class house-price growth. The link is indirect as the lack of services provision is a handy proxy for the level of economic development, and it is the latter that influences house price levels and house-inflation rates. The level of economic development (in a province) can be the result of various factors, for instance a low ratio of educated citizens, possibly aggravated by mismanagement of the scarce resources available to the local jurisdictions, and the degree of urbanisation. As for the latter, it is much more expensive to provide basic services to rural settlements. Our tentative interpretation of the above evidence is as follows: Residential income yields The degree of lack of basic services provision to the very poor can act as a proxy for the level of economic development of an area (in the present case, a province). This is so because the extent of a lack of services is presumably correlated with the degree of unemployment, as well as the revenue available to the local authority. The level of economic development (in a province) is one of the important drivers of house prices. This presumably applies to both the rate of growth of house prices and the level of house prices. We intend to examine this proposition further next quarter, considering that the present investigation relied only on one year s house-price growth. Tables 10.1 and 10.2 summarize the grossincome yields on houses and townhouses. As a rule of thumb, to convert gross income yields to net, the reader should deduct 1½ percentage points from gross. This deduction takes into account operating expenses such as insurance and maintenance, as well as assessment rates. Nevertheless, net yields, as determined by the market via the market value and the net market rental the residential property commands, can be used as a rough guide to the state of the respective segments prospects as viewed by the market. Higher yields imply higher risk and/or lower expected capital growth. This chapter is concluded by the gross-income yields tables.

150 126 House market

151 127 House market Eastern Cape Port Elizabeth Table 10.1 Gross-income yields (%) of houses by price class Quarter 2015:1 Low Middle High - Summerstrand/Humewood 5,6 11,4 9,2 - Walmer (to 8th avenue) 5,7 7,8 7,9 - Upper Walmer 5,6 5,8 6,4 - Central / North End / Sydenham 13,1 8,5 7,2 - Fernglen/Framesby 7,3 6,2 6,6 - Westering 7,4 7,7 6,3 - Algoa Park 14,4 10,2 6,9 - Kabega 10,3 11,3 7,7 - Malabar II 13,3 10,0 9,3 Uitenhage - Uitenhage 7,7 6,8 6,0 East London - Gonubie Park 10,3 10,7 10,4 - Beacon Bay 7,7 11,4 10,1 - Vincent/Nahoon Valley/Berea 9,2 10,4 10,4 - Nahoon Valley Park/Abbotsford 8,1 9,4 8,5 - Boonie Doon /Nahoon/Stirling 7,3 8,7 10,4 - Bunker s Hill /Baysville/Selborne 9,0 10,9 10,4 - Southernwood/Arcadia/Quigney Beach/Parkside/Park Heights /CBD 8,6 7,9 8,6 - Morningside /Cambridge West /Cambridge 7,3 7,7 7,7 - Amalinda/Haven Hills 7,2 7,0 7,5 - Willow Park/Rosemount/ Sunnyridge/Greenfields 7,6 7,8 10,3 Free State Bloemfontein - Houses north of Mandela Blvd 5,6 4,9 5,8 - Houses south of Mandela Blvd 7,1 6,9 8,1 - Langenhoven Park 6,6 5,2 7,3 - Ehrlich Park 7,5 9,1 -

152 128 House market Gauteng Pretoria Table 10.1 (continued) Gross-income yields (%) of houses by price class Quarter 2015:1 Low Middle High - Akasia 5,3 4,4 5,0 - Pretoria North / Dorandia / Florauna 6,9 8,0 9,3 - Annlin/Wonderboom/Sinoville/Montana 8,1 6,5 10,0 - Die Moot / Queenswood 10,5 9,5 12,8 - Eastlynne/Eersterust 9,0 10,4 7,5 - Silverton / Meyerspark / La Montagne 7,0 7,1 6,3 - Eastern Suburbs 6,0 7,7 10,0 - Groenkloof/Brooklyn / most Waterkloofs 7,5 10,3 12,8 - South Eastern Suburbs 6,7 10,6 14,2 - Sunnyside 7,9 10,7 5,5 - Arcadia 9,0 9,6 7,3 - Pretoria Central 16,0 12,3 7,7 - Pretoria West 11,7 11,4 10,7 - Kwaggarand / West Park 7,7 6,0 7,1 - Elandspoort/Danville 8,0 7,6 9,3 Centurion - Kloofsig / Lyttelton Manor / Doringkloof 14,7 12,4 5,1 - Clubviews/Eldoraigne 8,8 8,5 8,9 - Rooihuiskraal / The Reeds 8,2 7,8 7,9 - Heuweloord 8,3 8,8 9,7 Benoni Lakefield Westdene Farrarmere 7,4 7,8 8,7 Morehill 7,2 7,4 6,3 Rynfield 6,6 7,2 7,8 Northmead 7,5 7,6 6,8 Crystal Park - 9,4 7,2 Western Extension 8,6 9,2 8,4

153 129 House market Boksburg Table 10.1 (continued) Gross-income yields (%) of houses by price class Quarter 2015:1 Low Middle High Boksburg 13,0 8,5 6,4 Western Cape Cape Town South Peninsula 10,7 8,8 6,0 - Grassy Park / Pelican Park 8,8 0,9 11,1

154 130 House market Eastern Cape Port Elizabeth Table 10.2 Gross-income yields (%) of townhouses by price class Quarter 2015:1 - Summerstrand/Humewood / South End 8,3 8,7 - Walmer/Charlo/Fairview/Lorraine 8,2 8,2 - Newton Park / Fernglen / Sunridge Park 7,2 7,6 - Westering / Hunter's Retreat 7,4 7,4 - Algoa Park 8,0 8,0 - Kabega 9,0 7,4 - Malabar II 8,7 10,1 Low Middle Uitenhage - Uitenhage 9,1 8,5 East London - Gonubie Park 8,9 10,7 - Beacon Bay 9,4 9,1 - Bonnie Doon 7,3 8,4 - Nahoon Valley Park / Abbotsford 7,3 8,4 - Nahoon 8,3 8,4 Free State Bloemfontein - Houses north of Mandela Blvd 6,8 4,6 - Houses south of Mandela Blvd 7,0 5,4 - Langenhoven Park 6,9 6,4 Gauteng Benoni - Lakefield 9,6 6,0 - Westdene 9,0 5,3 - Farrarmere 7,2 7,2 - Morehill 8,0 6,9 - Rynfield 10,3 6,9 - Northmead 8,0 5,6 - Crystal Park 9,5 9,4 Boksburg Boksburg 8,2 8,0

155 131 House market Centurion Table 10.2 (continued) Gross-income yields (%) of townhouses by price class Quarter 2015:1 Low Middle - Pierre van Ryneveld 8,1 8,8 - Irene 8,5 12,8 - Kloofsig / Lyttelton Manor / Doringkloof 8,3 11,3 - Highveld and Extensions 7,9 8,8 - Clubviews / Eldoraigne / Wierda Park 7,4 8,9 - Rooihuiskraal / The Reeds 7,2 9,6 - Heuweloord 8,3 7,7 - Valhalla 9,0 8,3 Western Cape Cape Town - Southern Suburbs 9,3 9,3 - Northern Suburbs 9,2 9,6 - City Bowl 8,0 8,0 - Maitland/Kensington/Thornton 8,3 8,3 - Pinelands 8,0 7,6 - Blouberg 9,2 9,7 - South Peninsula 9,2 9,7 - Atlantic Seaboard 7,4 8,0 - Athlone & Surrounds 10,4 8,5 - Lavender Hill / Retreat /Grassy Park / Kenwyn / Pelican Park 9,8 8,5 - Mitchell s Plain 14,4 15,4

156 132 Building activity and building costs Chapter 11: Building activity and building costs Continued tough times ahead for building industry John S. Lottering For now, a strong recovery in building activity should not be expected. This view is based on what underlying property market value cycles seem to suggest. direction on the back of a sustained improvement in house prices a strong recovery in residential building activity cannot be expected. Square metreage completed 1,400,000 1,200,000 1,000, , , ,000 Smoothed Flats & townhouses Houses > 80m² Residential building activity Houses vs flats & townhouses (square metreage completed) Square metreage completed 1,400,000 1,200,000 1,000, ,000 r²=0,9 Square metreage of residential space completed: Houses>80m² vs Cyclical component of Absa' HPI Houses>80m² completed Absa' HPI cycle Detrended Absa HPI 200, , Source of data: Stats SA; Rode calculations 400, Source of data: Absa; Stats SA; Rode calculation As the first graph shows, new residential space completed has edged sideways since In the first quarter of 2015, the square metreage of houses (>80 m²) showed no growth when compared to the same period a year ago. Over the same period, flats & townhouses completed contracted by 6% (see Table 11.1). As the corresponding graph shows, the underlying cyclical component (see textbox) of Absa s middle-segment house-price index has been heading south since Also evident, is the very positive robust (r²=0,9) relationship since 1993 between house prices and houses completed. Naturally, this might imply that until this cyclical component reaches a trough and changes Non-residential building activity has in recent quarters also mostly shown year-onyear contractions or, in the case of industrial space, decelerating growth (see Table 11.1). Plans passed (m²) 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 Plans passed: Retail Retail market value cycle Square metreage of plans passed: Retail vs Cyclical component of regional centre market value index r=0, Source of data: Stats SA; IPD Annula Digest; Rode calculations Detrended Regional SC market value index

157 133 Building activity and building costs But, despite the underlying market value cycles of retail, office and industrial property that has been edging south since 2008, the square metreage of non-residential plans passed has increased since 2012 (see corresponding graphs). Naturally, should market values of these property types remain under pressure think here of poorly performing market rentals that are a key driver of value the outcome could be the shelving of plans and tepid growth or continued contractions in non-residential building activity. Plans passed (m²) 2,400,000 2,200,000 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , ,000 Square metreage of plans passed: Industrial vs Cyclical component of industrial warehousing market value index Plans passed: Industrial Industrial warehouse market value cycle r=0, Source of data: Stats SA; IPD Annula Digest; Rode calculations Detrended Regional SC market value index In this chapter we always analyse building activity and building costs together because the former is an important determinant of the latter. As for building costs, in the first quarter of 2015 overall tender prices as measured by the BER Building Cost Index are expected to have shown growth of 7%. Naturally, continued weak building activity implies less room for contractors to stretch profit margins. The outcome of this could be moderating growth in building costs. In the reporting quarter, input costs for the construction of non-residential buildings as measured by Haylett (Work Group 181) are expected to have shown growth of 6%. This is slightly lower than the estimated growth in tender prices of 7%. We expect that a weakening rand exchange rate, together with rising fuel prices, will soon put some upward pressure on building-input costs (as measured by the Haylett Index). Plans passed (m²) Square metreage of plans passed: Offices vs Cyclical component of prime-grade office market value index 1,300, r=0,7 1,200, ,100, ,000, , , , , ,000 Plans passed: Office 0.96 Office market value cycle 400, Source of data: Stats SA; IPD Annula Digest; Rode calculations Detrended Regional SC market value index % change on previous year BER BCI Haylett (Work Group 181) BER BCI vs Haylett Growth over the previous year Source of data: BER; JBCC CPAP Haylett formula

158 134 Building activity and building costs Any time series can contain some or all of the following components: Trend (T), Cyclical (C), Seasonal (S) and Irregular (I). These components may be combined in different ways. It is usually assumed that they are multiplied or added, i.e. yt = T x C x S x I or yt = T + C + S + I. Detrending is the mathematical or statistical operation of removing trend from the series in order to accentuate the other components of the time series. In our example, the already seasonally adjusted services-sector output time series was detrended, thereby highlighting the cyclical (C) and irregular (I) components of the time series. Any pattern showing an up-and-down movement around a given trend is identified as a cyclical pattern. Source: Table 11.1 Growth in square metreage of building space completed (%; y-o-y) 2014Q2 2014Q3 2014Q4 2015Q1 Dwelling-houses < 80 m² -21,8-15,8-5,5-0,2 Dwelling-houses 80 m² -7,5-7,1-2,9 0,3 Flats & townhouses 4,7-7,6-4,3-6,2 Total residential -7,2-8,7-3,7-1,4 Office -32,1-32,9-23,4-2,6 Shopping 32,2-9,4 1,2-1,4 Industrial & Warehouse 21,1 14,6 17,7-7,1 Total non-residential 4,8-7,4-0,4-4,4 Total residential plus nonresidential Source of data: Stats SA; Rode calculations -3,6-8,3-2,6-2,3 The BER Building Cost Index (BCI) measures pre-contract non-residential prices and as such includes the profit margin of contractors. This Index is one of the best indicators of the health of the building industry: if it accelerates faster than input costs, then contractors are stretching their profit margins, and vice versa. The Haylett Index is a measure of all input costs in the building industry, especially material and labour costs.

159 Annexures

160 I Annexure 1 Glossary of property and related terms and abbreviations Arithmetic mean: The most often used measure of central tendency, it is the simple average of a number of observations. Mathematically, it is equal to the sum of all values divided by the number of observations. For example, the arithmetic mean of 6 and 7 is (6+7)/2. The arithmetic mean of 6, 7 and 8 is (6+7+8)/3; and so forth. Outlier observations may unduly affect the mean. In the Rode publications all references to the mean refer to the arithmetic mean, unless otherwise specified. See also geometric mean and median. Besa: Bond Exchange of South Africa. BER BCI: Bureau for Economic Research Building Cost Index. Measures pre-contract non-residential building-construction prices and as such it includes the profit margin of contractors. This index is one of the best indicators of the health of the buildingconstruction industry. If it accelerates faster than input costs (Haylett Index), then contractors are stretching their profit margins as a result of sufficient work, and vice versa. Building construction: the construction of buildings like houses, office blocks, factories, shopping centres, schools, hospitals. See also civil construction. Bulk: The market value of office and shopping-centre land is generally expressed as the value per bulk square metre. Bulk square metres refer to the gross building area (GBA) of a building. According to The Sapoa Method for Measuring Floor Areas in Commercial and Industrial Buildings, GBA covers: The entire building area, but it excludes patios, plant boxes, sunscreening, escape stairs, machine rooms, parking (basements or above ground), lift motor rooms, service rooms, caretakers flats, etc. GBA is mainly used by planning consultants in order to plan and execute a building in accordance with the permissible Floor Area Ratio (F.A.R) as derived from the zoning of the property. GBA is fixed for the life of the building but it should be noted that different local authorities may interpret the National Building Regulations, which regulate the F.A.R definition, in a slightly different manner. Standard capitalization rate: It is the expected net operating income for year 1, assuming the entire building is let at openmarket rentals, divided by the purchase/ transaction price, normally expressed as a percentage. This calculation ignores VAT, transfer duty and income tax, and assumes a cash transaction (in contrast to a paperbased sale). CBD: Central business district or downtown. This is an area of concentrated high economic activity. The user may want to differentiate between the metropolitan CBD (e.g. the Johannesburg CBD) and a decentralized CBD (like the Sandton CBD). Civils: colloquial for civil construction.

161 II Annexure 1 Civil construction: the construction of physical infrastructure like roads, bridges, dams, the laying of storm water pipes, electricity and water reticulation. See also building construction. Cyclical trend: A short-term growth path of an economic variable. Normally refers to the business cycle, as distinct from a secular trend. Dec: Decentralized. A Rode abbreviation. Town and regional planners differentiate between local decentralization (from the metropolitan CBD to the suburbs) and regional decentralization (to outlying areas of the country). Deflation: Deflation occurs when prices are declining over time. This is the opposite of inflation and could be catastrophic. When the inflation rate (by some measure) is negative for a period, the economy is in a deflationary period. See also disinflation. Deseasonalized: Seasonal fluctuations have been removed. In the case of retail sales, this is essential in order to be able to compare sales pertaining to different months of the year, as opposed to comparing sales of one quarter or month with the same quarter or month a year earlier. Discount rate: The rate used to express an expected future cash stream in presentvalue terms. In most instances, the discount rate is equal to the hurdle rate. Mathematically, the hurdle rate of a property is the sum of its market capitalization rate and the expected constant growth rate of its cash flow in perpetuity. Disinflation: Disinflation occurs when the inflation rate is declining over time. See also deflation. Escalation rate: The rate by which a rental is hiked once a year in terms of a lease. The ruling market escalation rate can be seen as an attempt by the market to forecast the growth in market rentals over the duration of the lease, but this attempt is obviously rarely successful. Thus it is important to differentiate between an escalated rental and a market rental. Forward (income) yield: A bourse term, hence it is typically applied to listed properties. In the non-listed property market, its approximate equivalent is the capitalization rate. It represents the expected net income of year 1 (the following 12 months) divided by the current price/value. It stands to reason that existing leases would largely determine the net income of year 1. See also historic (income) yield. Fundamental value (FmV): It is a subjective value based on the investor s own, subjective forecast of rentals and maybe the investor s unique or different inhouse discount rate/capitalization rate. A FmV higher than the objective market value (MV) is a buy signal to an investor. The calculation of the FmV is especially indicated where the economy, or property market, changes gear, e.g. a secular change in inflation rate or the real-rental cycle bottoming out. These are instances where any market is notoriously poor at forecasting trends. An alternative term is intrinsic value. Geometric mean: A measure of central tendency calculated by multiplying the series of numbers and taking the n th root of the product, where n is the number of items in the series. The geometric mean is defined only for sets of positive numbers. For example, the geometric mean of 6 and 7 is the square root of (6*7). The geometric mean of 6, 7 and 8 is the cube root of

162 III Annexure 1 (6*7*8); and so forth. See also arithmetic mean and median. Geometric mean return: It is also called the time-weighted rate of return or the average compounded rate of return. It is calculated by taking the geometric mean of a portfolio s subperiod returns. Where there is a great variance in subperiod returns, this is a better return measure than the arithmetic mean return. Unlike the internal rate of return, it is not influenced by the timing and weights of money-flows. Haylett index: A measure of the movement of all input costs in the building industry, especially material and labour costs. Designed to recompense the building contractor for in-contract rises in input costs. Official designation: JBCC CPAP Haylett Formula (Work Group 180). Does not include profit margins for contractors. Historic or trailing (income) yield: A bourse term, hence it is typically applied to listed properties. It represents the net income of year 0 divided by the current price/value. See also forward (income) yield. In a market of rising net incomes the historic yield would be expected to be lower than the forward yield. Hurdle rate: The minimum total return (income yield plus expected capital appreciation) required by potential investors to induce them to invest in a property. Also known as the required rate. As such this is normally the correct rate to use when doing discounted cash flow (DCF) analyses. This is a similar concept to a company s cost of capital, and it is not to be confused with the cost of money (say, overdraft interest rate). One way of measuring the total return on an investment, ex post or ex ante, is the internal rate of return (IRR) method. See also discount rate. Index: Describes the method of standardizing the base for comparative data in a time series, usually equating the initial measure to 100 and then expressing all other data in exact relation that base, e.g. the index for office rentals in any year by comparison with a baseyear value of 100 might stand at 90 or 110, indicating a fall or rise of 10% respectively. Industrial-building grades: Prime: An industrial property in which space is easily lettable because it satisfies each of the following prerequisites: a. Generally in a good condition; b. Satisfactory macro access (i.e. access to freeway); c. Satisfactory micro access (i.e. from street to building); d. Proper loading facilities; e. Eaves >4 m (excluding micro/ mini units); f. Wide clear span of trusses (few internal pillars); g. On ground level; h. Adequate three-phase electrical power. The eight conditions above are prerequisites for space to be considered prime. However, a building may possess additional enhancements that could improve lettability through increasing the size of the potential tenant pool. Such enhancements could include sufficient office accommodation, adequate parking, sprinkler systems, masonry up to sill height, adequate floor loadings, roof insulation, sufficient yard space and a good location (as opposed to access). Comparative grading of industrial and office space Industrial Prime + Prime Prime - Secondary Offices A B C D

163 Rode s Report 2015:1 IIV Annexure 1 Secondary: This is industrial space which is not classifiable as prime because it does not satisfy all eight prerequisites for prime space listed above. Such space is typically old buildings or structures, which have been haphazardly renovated. It would have poor access, too little yard space or office accommodation, inadequate goods lifts, no three-phase power and obsolete electrics and ablution facilities. Such space is often (but not exclusively) found in highly urbanised areas. Industrial park: An industrial park is a multi-tenanted complex of industrial buildings, typically surrounded by a security fence with access control and possibly some greenery. Initial yield: The first year s expected net operating income (based on existing leases and other income reasonably expected) divided by the purchase price. Therefore the initial yield and the capitalization rate are only the same in those rare cases where a building is let at open-market rentals. Internal rate of return (IRR): A performance measurement that takes cognisance of the time-value of money. Technically, it is that rate which equates the inflows with the outflows of a cash flow. Also known as the money-weighted rate of return because the timing and weights of the money-flows influence the return. See also geometric mean return. JSE: JSE Securities Exchange South Africa. Leaseback: A fully repairing and insuring lease (tenant pays all operating costs) for 10 years or longer (with typically 5- yearly rent reviews or fixed annual escalations) with a tenant with a strong covenant. Lessee: A person or other entity to whom space is rented under a lease. A tenant. See also lessor. Lessor: One who rents space to another under a lease. A landlord. See also lessee. Market rental: The most probable rental that a voluntary, informed and prudent lessee will pay a voluntary, informed and prudent lessor in a normal open-market (arms-length) transaction, when neither party is under any compulsion to rent or let, other than their normal desire to transact. As per IVS 2011 the estimated amount for which a property would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion Market value: Market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. Source: International Valuation Standards Committee, 2003 The MV is an objective value in that the crucial value determinants are largely derived from the marketplace. See also price and fundamental value. As per IVS 2011 the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. Mean: See arithmetic mean; median; geometric mean. Median: Midpoint of a series of observations when arranged in order of magnitude. Thus it is a measure of central tendency that divides the data set into halves. Less affected by outlier observa-

164 V Annexure 1 tions than the arithmetic mean. For example, the median of 5, 6, 7, 8, 9 is 7. And for 5, 9, 15, 16, 17, 21, 23 the median is 16. See also geometric and arithmetic mean. Metro: Metropolitan. MFA: Medium-Term Forecasting Associates, construction economists located in Stellenbosch. n: Number of respondents. N/A: Not available fewer than two respondents. NNN lease: Also known as a triple-net lease. A fully repairing and insuring lease (tenant pays all operating costs). The commonest example is a Leaseback. Office building grades defined by quality of finishes and facilities: Grade A: Generally not older than 10 years, unless renovated; prime location; high-quality finishes; adequate on-site parking; air-conditioning. Commands a gross market rental as indicated in the accompanying table. Grade B: Generally 10 to 20 years old, unless renovated; accommodation to modern standards; prime location; airconditioning; on-site parking. Commands a gross market rental as indicated in the accompanying table. Grade C: Generally 20 to 30 years old, unless renovated; in fairly good condition, although finishes are not up to modern standards; good location; may have onsite parking; unlikely to be centrally airconditioned; commands a gross market rental as indicated in the accompanying table. Grade D: A building reaching the end of its functional life; old and in poor condition; near the bottom of the rental rate range; typically no air-conditioning and no on-site parking; may have good location. These grades might be further sub-divided into sub-grades, viz. A +, A -, B +, B -, C + or C -. Office demand: Office stock less office space vacant (space on the market for renting irrespective of whether there is still a valid lease over the space). In other words, demand is office space occupied. Office stock: Total rentable office space. Office take-up: Change in office demand. Where take-up is positive, it can also be called the growth in demand. Office vacancies: This is the floor area available for leasing at any given time, irrespective of whether there is still a valid lease over the space. Often expressed as a percentage of the stock in rentable m². Operating costs: See outgoings. Opportunity cash flow (OCF): A valuation term introduced by Rode. The OCF quantifies the amount gained or foregone by the landlord in that the property is either over rented or under rented. More precisely, for each lease and the space that such a tenant occupies, it is, until expiry of such a lease, the present value (PV) of the contractual rental less the open-market rental (as at the valuation date) escalating at the openmarket escalation rate (as at the valuation date). Outgoings (operating costs): In the case of office buildings, the following items are included under total gross outgoings, irrespective of who pays for these: Cleaning. Repairs & maintenance. Common-area electricity & water (not tenant s own). Security. Management (excluding head office overheads). All leasing expenses: broker s commission and in-house payroll, advertising, tenant installations &

165 VI Annexure 1 relocations (unless recovered), buy-outs, etc. Municipal tax. Insurance (fire & SASRIA). In the case of self-insurance, the market average should be included. Refuse & sewerage less recoverable amount. External & common area repairs & maintenance. Audit fees. The following items are excluded: VAT. Head office overheads. Tenant s own electricity and water. Tenant installations/relocations recovered. Internal maintenance. Recoverable refuse & sewerage. Price: The amount actually paid for an asset. Not the same as market value, because special circumstances may have applied when the transaction was concluded. PLS: Property loan stock, also known as variable loan stock (VLS) (type of listed property fund). PUT: Property unit trust (type of listed property fund). Reit: A reit is an entity that invests primarily in real estate and qualifies for special tax status in that there is single taxation at the end-investor (not the fund) level. Source: Lehman, Robert W. & Howard, Roth S. Global Real Estate Investment Trust Report 2010: Against all odds. Ernst & Young. Rental: Basic rental (base rental in the USA): A set amount used as a minimum rent in a lease which also employs a percentage of turnover or other allocation for additional rent. Gross rental: The total rental payable by the tenant, excluding VAT, the tenant s own electricity and water charges, but including other operating costs recovered by the landlord (if any), as well as promotion expenses payable by the tenant in the case of shopping centres. See also rental, net. Net rental: The amount payable by the tenant, excluding VAT and excluding operating costs recovered by the landlord (if any). See also rental, gross. Nominal rental: This has a dual meaning: o Firstly, it refers to rentals where the analyst or valuer assumes no incentives like a rent-free period, free relocation, cash upfront, or balance-of-installation allowance. It also excludes amortisation of tenant-installation costs. o Secondly, it can also mean actual rental values (i.e. not deflated). See also rental, real. Pioneer rental: The highest rental actually achieved and could be a once-off outlier deal; hence pioneer is not market. The difference between pioneer and the highest market rentals may be used as a blunt tool to gauge the prospects for market rental growth in the short term. If the differential is positive, it is an indication of growth prospects in the node. If the differential is negative, it is an indication that landlords are finding it difficult to find new tenants at the going market rental rate. Real rental: Deflated rental, typically observations (values) over time (a time series) from which the relevant inflation has been removed. See also rental, nominal. Rent-free period: No rent is payable by

166 VII Annexure 1 the tenant for an initial portion of the term of a lease. It is offered by a landlord as a rental concession to attract tenants. Required rate: see hurdle rate. Retail price: In the context of property syndication, this means the price at which a property-holding company s shares are sold to the public or the price at which these shares trade. See also wholesale value. RR: Rode's Report on the South African Property Market, a quarterly journal for the professional property practitioner. Sapoa: South African Property Owners Association. SARB: South African Reserve Bank (viz. the central bank) Secular trend: A long-term growth path of an economic variable, around which there might be short-term (business cycle) or other fluctuations. See also cyclical trend. Shopping centre configurations: Mall: Typically enclosed with common walkway between two facing strips of stores. This is the design mode for super regional, regional and most community shopping centres. Strip centre: Is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking, usually located in front of the stores. Store-fronts may be connected by open canopies, but there are no enclosed walkways linking the stores. Store configuration is either a straight line, L or U shaped. This is the design mode for most neighbourhood, convenience and value (power) centres. Shopping centre types: Super regional: More than rentable m² of shop space; substantial comparison-shopping; principal tenants are three or more major department stores; more than 250 shops. Examples are: Eastgate and Sandton City (Johannesburg); Menlyn Park (Pretoria); Gateway (Durban metro); Canal Walk (Cape metro). Regional: to rentable m² of shop space; principal tenant(s) are one or more major department stores; approximately 40 to 250 shops. Examples are: Westgate, Fourways Mall, Cresta (Johannesburg); Brooklyn Mall (Pretoria); The Pavilion (Durban metro); Sanlam Centre in Parow, Tyger Valley, Kenilworth (Cape metro); Greenacres (Port Elizabeth); Mimosa Mall (Bloemfontein); Vincent Park Shopping Centre (East London). Community: to rentable m² of shop space; principal tenant is typically a variety store (e.g. Clicks) or a discount department store (e.g. Dion or Game); approximately 30 to 60 shops. Examples are: Sunnypark (Pretoria); Musgrave Centre (Durban); Middestad Mall in Bellville, Meadowridge, Goodwood Mall, Constantia Village (Cape metro); Constantia Centre (Port Elizabeth); Brandwag Centre (Bloemfontein); Beacon Bay Retail Park (East London). Neighbourhood: to rentable m² of shop space; principal tenant is a supermarket; 15 to 40 shops. Convenience: 300 to rentable m² of shop space; principal tenant is a café or grocer like Kwik Spar; 5 to 15 shops. Retail warehouse: Stand-alone; single tenant; >10.000m²; air-conditioned, no ceiling, warehouse-like finishes, e.g. Makro, Hypermarket, Game, Dion. Value centre: Multi-tenanted strip centre; >10.000m²; warehouse type finishes in order to deliver lower prices to consumers. Smoothing: Removal of shorter-term

167 VIII Annexure 1 fluctuations in a time series, by e.g. moving averages, exponential smoothing, or curve fitting. Standard deviation (SD): A measure of dispersion in a set of data. For instance, assume a normal distribution of observations and a mean of R10 and an SD of R1,50. This means there is a 68% chance the values will lie between R10 - R1,50 = R8,50 and R10 + R1,50 = R11,50. for the applicable year (net income in year 1 divided by the purchase price or value in year 0) plus the change in capital value over that year. Also known as the combined return because it combines the income yield and capital return in one measure. Triple-net lease: see NNN lease. VAT: value-added tax. Stats SA: Statistics South Africa, South African government s statistics department. Previously known as Central Statistical Services (CSS) and even earlier as the Department of Statistics. Time series R/m² per month A graphic portrayal of a rental time series Quarterly frequency Wholesale value: In the context of property syndication, this means the estimated price that a share or shares of a syndicated property-holding company would fetch (excluding winding-up costs) should the holding company be dissolved and the underlying property sold as a normal, non-syndicated property. See also retail price. Year-growth: Percentage by which figures have changed compared to the same month, quarter or year of the previous year. Year 0: Refers to the year ended at the present time Year 1: Refers to the period from year 0 to the end of the first year thereafter. A set of observations for the same variable at different times (see graph). The intervals or frequencies may be of any length, e.g. years or quarters for nationalincome or property data, monthly for prices, and weekly, daily, or even minuteby-minute for stock exchange prices. Total return: Normally measured over a year, in which case it is the income yield References: 1. International Council of Shopping Centres 2. Sapoa 3. Bureau of Market Research, University of South Africa 4. International Valuation Standards Committee, 2003

168 IX Annexure 2 Technical background to the Rode surveys Rode has been surveying the crucial variables of the property market in South Africa since the beginning of 1988 using the expert-panel method. Broadly speaking, the researcher has two potential approaches available to him. These are: o Track actual transactions, like the rental levels of lettings or the capitalization rates at which sales are concluded. Valuers (appraisers) call these comparables. o The expert-panel method of surveying, in which the surveyor regularly asks the same individual members of the panel for their expert opinions, which in turn will of course be based on actual deals of which the panellists are aware. The cons of tracking actual transactions are: Below we give the reader some insight in our survey approach to determine the levels of the various property variables: Capitalization rate: The Rode capitalization rate panel consists of two categories of panellist major owners, and leading investment brokers who know their market segments intimately. This means that the latter's knowledge is based on actual sales. The question put to these carefully chosen panellists is: Owners: In your opinion, what is presently the capitalization rate at which your organization is equally happy to buy or sell the properties in the cities below? (Assume a typical location and a cash sale, rather than paper.). For leasebacks, assume the escalation rate reported by you in this questionnaire. o o o o o A paucity of transactions in most nodes, making statistical inferences impossible. Hence the danger of relying on outlier data (mainly the result of small samples) Dated transactions The cost The unwillingness of the parties to report the details of individual deals. Brokers: In your opinion, what is presently the most prevalent capitalization rate at which the following properties are sold/bought in the cities indicated below (assume a cash sale rather than paper)? For leasebacks, assume the escalation rate reported by you in this questionnaire. Escalation rate (for industrial leasebacks). The question put to the panellists is: In contrast, through the expert-panel method of research, most of the above cons of the actual-transactions approach are addressed through opinion surveys. This results in cheaper, more accurate and timely information. Sample size is still (and will always be) a problem in some of the less active nodes, but to a lesser extent. Owners: In your opinion, what is the current prevalent (i.e. most often achieved) market escalation rate for prime industrial leasebacks (assume the market capitalization rate you provided in this questionnaire)? Brokers: In your opinion, what is the current prevalent (i.e. most often achieved)

169 X Annexure 2 market escalation rate for prime industrial leasebacks (assume the market capitalization rate you provided in this questionnaire)? (150m² in smaller towns for all office grades); occupation within 3 months, a lease period of 4 years and an average position within the building. Hurdle rate: The question put to landlord panellists is: Land values: The question put to developers or brokers is: In your opinion, what is presently the minimum expected internal rate of return or hurdle rate (%) at which your organization will acquire the following property types in the cities indicated on the right. (Assume a time horizon of 5 years)? Office bulk: In your opinion, what is the market value (R/bulk m²)* of a vacant stand with an average location in the following nodes? a. The bulk that is legally permissible and economically viable. The question is asked in respect of three property types: office buildings, industrial leasebacks and regional shopping centres. Respondents are asked to supply two hurdle rates, one rate for "buy" and one rate for "develop on spec". Office rentals: The Rode office rental survey asks respondents to supply average market rentals by grade (grades A+, A, B & C) for a specific office node. The question put to the panellists is: In your opinion, what is presently the nominal gross achievable/market rental (not asking rent, not escalated contractual rents, not exceptional deals) per rentable m² excluding VAT? The questionnaire also asks for the typical rent-free period in months, the gross current-year operating costs per rentable m² and the predominant escalation rate on net & gross rentals, and operating costs. Nominal rental means the panellist has to assume no incentives like a rent-free period. We ask the panellists to assume office lettings of 250m² in the case of grades A+, A & B and 150m² in the case of grade C Shopping centre bulk: In your opinion, what is the market value (R/bulk m²) a of vacant stands appropriately zoned b and with the necessary bulk for the following shopping centres? a. The bulk that is legally permissible and economically viable. b. Assume that these stands are ready for construction and that the major external infrastructure investments that municipalities normally force the developer to pay for are already in place. That is, external roads, offramps, bridges, new electrical substations, and the like, are in place. Filling-station land: In your opinion, what is the market value of an average-sized, filling station site a, with a pump-potential of litres per month? a. Site is defined as the unimproved land, with services to its borders, and appropriately zoned. Industrial rentals: The question put to panellists is: In your opinion, what are the current gross achievable/market rentals per m² for prime industrial buildings for the townships and

170 XI Annexure 2 lease sizes indicated below? Respondents are asked to assume that the office portion (if any) is less than 10% of the total area. The assumed floor area sizes are: 250m², 500m², 1.000m², 2.500m² and 5.000m². Respondents are also asked to fill in their vacancy estimate for prime industrial space, using a scale of 0 to 9. See the table below for detail on the vacancy scale. 0 Nil Vacancy scale for industrial townships <10% 10 20% >20% Low Medium High Thus, the reported vacancies do not represent percentages. Industrial land values: The question put to panellists is: In your opinion, what are the current market values per m² for vacant, serviced levelled land in the townships and for the stand sizes indicated below? Where land is only leased, provide the rent per m² per month. Exclude transfer costs and VAT. Provided you are well informed, please give us your opinion even though you might not have concluded a sale for the exact sizes shown in the spreadsheet attachment. The information is required for stand sizes of 1.000m², 2.000m², 5.000m² and m². Flat rentals: The question put to panellists is: In your opinion, what are the current market rentals (not asking rent) for new lettings for uncontrolled standard and upmarket flats in the following categories and areas? The rental data required is for unfurnished flats, excluding water and electricity. Parking is typically included. Respondents are asked to provide rentals for bachelor, 1-, 2- and 3-bedroom units. Note that the flat rentals are not quoted per m².

171 XII Annexure 3 How to interpolate industrial rental rates and land values The industrial rental and land value tables in the body of the RR contain regression equations in natural log (ln) form in order to allow the reader to interpolate rental rates or industrial land values for area sizes other than those given in the tables. (All references below are to the industrial rental tables. However, they also apply mutatis mutandis to the industrial land value table.) The regression equations are in natural log (ln) form because the relationship between the rental rates and area sizes leased, is curvilinear. This means that the rental rate for area sizes other than those quoted cannot be calculated by straight linear interpolation. In order to calculate the rental rate for an area size other than those quoted, use the following equation from the tables: ln Y = a + b(ln X) where: ln Y = the natural log of the rental rate, i.e. the value which we want to calculate. ln X = the natural log of the applicable floor area in m² for which we want to calculate the market rental rate. Note that a and b are given in the table. The coefficient of determination r 2 is an indication of the goodness of fit of the curve, i.e. how much confidence we can put in the interpolation we want to perform. An r 2 close to 1 is a good fit. An example: Interpolate a rental rate for an area size other than those quoted in the table e.g. for an area of 750 m². Use your financial calculator and proceed as follows: Assume the following equation: ln Y = 3,8855 (0,2263(ln X)) where X = 750 m². Step 1: Calculate the natural log of X, viz. the floor area for which you want to interpolate the market rental rate. The natural log of a floor area of 750 m² is 6,6201 (use the ln key of your financial calculator). Thus: ln Y = 3,8855 (0,2263(6,6201)) = 3,8855 1,4981 = 2,3874 Step 2: In order to calculate Y, get the exponential of ln Y (viz. of 2,3874) by using the e x key on your financial calculator. The answer is R10,89 per m².

172 XIII Annexure 4 Approximate building cost rates as at second quarter 2014 Source: Property and Construction Handbook, International Edition, AECOM The following, unless otherwise stated, is a list of approximate building cost rates per m² of construction area for various building types in the Gauteng region. The rates represent the average expected building cost rates for It is stressed that these rates are purely of an indicative nature and should be used with circumspection, as they are dependent upon a number of assumptions. The area of the building expressed in m² is equivalent to the Construction Area where appropriate, as defined in the Method for Measuring Floor Areas in Buildings, First Edition (effective from 1 st August 2005), published by the South African Property Owners Association (SAPOA). It is recommended that a quantity surveyor be consulted to calculate a more accurate replacement value of a building, which can be updated thereafter using the BER Building Cost Index. The rates below include P & G but exclude in-contract escalations, professional fees and VAT. For the calculation of replacement costs, for insurance purposes, the following should also be included: An allowance for demolition costs; Professional fees; In-contract building cost escalation (Haylett); Loss of interest; An escalation of the contract price to the end of the insurance period; and Loss of income.

173 XIV Annexure 4 Building type Johannesburg Rates include the cost of appropriate building services, e.g. air-conditioning, electrical, etc. but exclude costs of site infrastructure development, parking, any future escalation, professional fees and VAT. Offices 1. Low-rise office park development with standard /m² R7.600 specification 2. Low-rise prestigious office park development /m² R High-rise tower block with standard specification /m² R High-rise prestigious tower block /m² R Note: Office rates exclude parking and include appropriate tenant allowances incorporating carpets, wallpaper, louvre drapes, partitions, lighting, air-conditioning and electrical reticulation. Parking 1. Parking on grade including integral landscaping and ground preparation /m² R Structured parking /m² R Parking in semi-basement /m² R Parking in basement /m² R5.500 Retail 1. District centre /m² R Regional centre /m² R Strip shopping /m² R9.300 Note: The above rates include the cost of tenant requirements and specifications of national chain stores. Retail costs vary considerably depending on the tenant mix and sizing of the various stores. Residential 1. RDP housing /m² R Low cost housing /m² R Simple lo-rise apartment block /m² R Economic duplex townhouse /m² R Prestige apartment block /m² R Private dwelling houses: Economic /m² R4.100 Standard /m² R5.600 Middle Class /m² R6.500 Luxury /m² R9.400 Exclusive /m² R Exceptional ( Super luxury ) /m² R Outbuildings /m² R4.100

174 XV Annexure 4 9. Carport (shaded): Single /unit R280 Double /unit R Carport (covered): Single /unit R440 Double /unit R Swimming pool Not exceeding 50kl /unit R3.500 Exceeding 50kl and not exceeding 100kl /unit R Tennis court Standard /unit R5.500 Floodlit /unit R Hotels 1. Budget /key R Mid-scale /key R Luxury /key R Note: Hotel rates exclude allowances for furniture, fittings and equipment (FF&E). Studios 1. Studios: dancing, art exhibitions, etc. /m² R Conference Centres 1. Conference centre to international standards /m² R Retirement Centres 1. Dwelling house middle class /m² R6.300 luxury /m² R Apartment block middle class /m² R6.500 luxury /m² R Community centre middle class /m² R8.600 luxury /m² R Schools 1. Primary school /m² R Secondary school /m² R6.450 Major unit rates 1. Basement excavation /m² R88 2. Foundation excavation /m² R Imported structural fill /m² R294

175 XVI Annexure 4 4. Concrete in pad footing (25Mpa) /m² R Concrete in wall (32Mpa) /m² R Concrete in suspended slab /m² R Formwork to slab soffit /m² R Formwork to side and soffit of beam /m² R Precast wall panel architectural with sand blast finish /m² R Reinforcement in beam /t R Structural steel in beam /t R Structural steel in truss /t R Aluminium frames window 6.5mm clear glass /m² R Aluminium panel curtain wall system(including /m² R3.640 Structural system) 15. Steel stud partition (framing) /m² R Plasterboard 13mm thick to partition /m² R Suspended mineral fibre ceiling tile /m² R Paint on plaster board wall /m² R Ceramic tiles to wall /m² R Non-slip vinyl to wet areas /m² R Anti-static carpet tile to office and admin areas /m² R Anti-static broadloom carpet to office and admin areas /m² R Aluminium framed shopfront /m² R2.265 Building type Cape Town Rates include the cost of appropriate building services, e.g. air-conditioning, electrical, etc. but exclude costs of site infrastructure development, parking, any future escalation, professional fees and VAT. Offices 1. Low-rise office park development with standard /m² R8.740 specification 2. Low-rise prestigious office park development /m² R High-rise tower block with standard specification /m² R High-rise prestigious tower block /m² R Note: Office rates exclude parking and include appropriate tenant allowances incorporating carpets, wallpaper, louvre drapes, partitions, lighting, air-conditioning and electrical reticulation. Parking 1. Parking on grade including integral landscaping and ground preparation /m² R620

176 XVII Annexure 4 2. Structured parking /m² R Parking in semi-basement /m² R Parking in basement /m² R6.325 Retail 1. District centre /m² R Regional centre /m² R Strip shopping /m² R Note: The above rates include the cost of tenant requirements and specifications of national chain stores. Retail costs vary considerably depending on the tenant mix and sizing of the various stores. Residential 1. RDP housing /m² R Low cost housing /m² R Simple lo-rise apartment block /m² R Economic duplex townhouse /m² R Prestige apartment block /m² R Private dwelling houses: Economic /m² R4.715 Standard /m² R6.440 Middle Class /m² R7.475 Luxury /m² R Exclusive /m² R Exceptional ( Super luxury ) /m² R Outbuildings /m² R Carport (shaded): Single /unit R322 Double /unit R Carport (covered): Single /unit R506 Double /unit R Swimming pool Not exceeding 50kl /unit R4.025 Exceeding 50kl and not exceeding 100kl /unit R Tennis court Standard /unit R6.325 Floodlit /unit R Hotels 1. Budget /key R Mid-scale /key R Luxury /key R

177 XVIII Annexure 4 Note: Hotel rates exclude allowances for furniture, fittings and equipment (FF&E). Studios 1. Studios: dancing, art exhibitions, etc. /m² R Conference Centres 1. Conference centre to international standards /m² R Retirement Centres 1. Dwelling house middle class /m² R7.245 luxury /m² R Apartment block middle class /m² R7.475 luxury /m² R Community centre middle class /m² R9.890 luxury /m² R Schools 1. Primary school /m² R Secondary school /m² R7.600 Major unit rates 1. Basement excavation /m² R Foundation excavation /m² R Imported structural fill /m² R Concrete in pad footing (25Mpa) /m² R Concrete in wall (32Mpa) /m² R Concrete in suspended slab /m² R Formwork to slab soffit /m² R Formwork to side and soffit of beam /m² R Precast wall panel architectural with sand blast finish /m² R Reinforcement in beam /t R Structural steel in beam /t R Structural steel in truss /t R Aluminium frames window 6.5mm clear glass /m² R Aluminium panel curtain wall system (including /m² R4.185 structural system) 15. Steel stud partition (framing) /m² R Plasterboard 13mm thick to partition /m² R Suspended mineral fibre ceiling tile /m² R192

178 IXX Annexure Paint on plaster board wall /m² R Ceramic tiles to wall /m² R Non-slip vinyl to wet areas /m² R Anti-static carpet tile to office and admin areas /m² R Anti-static broadloom carpet to office and admin areas /m² R Aluminium framed shop front /m² R2.605 Building type Durban Rates include the cost of appropriate building services, e.g. air-conditioning, electrical, etc. but exclude costs of site infrastructure development, parking, any future escalation, professional fees and VAT. Offices 1. Low-rise office park development with standard /m² R8.360 specification 2. Low-rise prestigious office park development /m² R High-rise tower block with standard specification /m² R High-rise prestigious tower block /m² R Note: Office rates exclude parking and include appropriate tenant allowances incorporating carpets, wallpaper, louvre drapes, partitions, lighting, air-conditioning and electrical reticulation. Parking 1. Parking on grade including integral landscaping and ground preparation /m² R Structured parking /m² R Parking in semi-basement /m² R Parking in basement /m² R6.050 Retail 1. District centre /m² R Regional centre /m² R Strip shopping /m² R Note: The above rates include the cost of tenant requirements and specifications of national chain stores. Retail costs vary considerably depending on the tenant mix and sizing of the various stores. Residential 1. RDP housing /m² R Low cost housing /m² R Simple lo-rise apartment block /m² R Economic duplex townhouse /m² R8.910

179 XX Annexure 4 5. Prestige apartment block /m² R Private dwelling houses: Economic /m² R4.510 Standard /m² R6.160 Middle Class /m² R7.150 Luxury /m² R Exclusive /m² R Exceptional ( Super luxury ) /m² R Outbuildings /m² R Carport (shaded): Single /unit R308 Double /unit R Carport (covered): Single /unit R484 Double /unit R Swimming pool Not exceeding 50kl /unit R3.850 Exceeding 50kl and not exceeding 100kl /unit R Tennis court Standard /unit R6.050 Floodlit /unit R Hotels 1. Budget /key R Mid Scale /key R Luxury /key R Note: Hotel rates exclude allowances fot furniture, fittings and equipment (FF&E) Studios 1. Studios: Dancing, art exhibitions, etc. /m² R Conference Centres 1. Conference centre to international standards /m² R Retirement centres 1. Dwelling house Middle class /m² R6.930 Luxury /m² R Aparment block Middle class /m² R7.150 Luxury /m² R Community centre Middle class /m² R9.460 Luxury /m² R13.860

180 XXI Annexure 4 Schools 1. Primary school /m² R Secondary school /m² R7.200 Major unit rates 1. Basement excavation /m² R96 2. Foundation excavation /m² R Imported structural fill /m² R Concrete in pad footing (25Mpa) /m² R Concrete in wall (32Mpa) /m² R Concrete in suspended slab /m² R Formwork to side and /m² R Formwork to side and soffit of beam /m² R Precast wall panel architectural with sand blast finish /m² R Reinforcement in beam /t R Structural steel in beam /t R Structural steel in truss /t R Aluminium frames window 6.5mm clear glass /m² R Aluminium panel curtain wall system (including /m² R4.005 structural system) 15. Steel stud partition (framing) /m² R Plasterboard 13mm thick to partition /m² R Suspended mineral fibre ceiling tile /m² R Paint on plaster board wall /m² R Ceramic tiles to wall /m² R Non-slip vinyl to wet areas /m² R Anti-static carpet tile to office and admin areas /m² R Anti-static broadloom carpet to office and admin areas /m² R Aluminium framed shopfront /m² R2.490

181 XXII Annexure 4 Notes 1. Regional variations: Construction costs normally vary between the different provinces of South Africa. Costs in the Western Cape and KwaZulu-Natal, specifically upper class residential, for example, are generally significantly higher than Gauteng due to the demand for this accommodation. 2. Value added tax (VAT): As the majority of developers are registered vendors in the property industry, any VAT paid by them on commercial property development is fully recoverable. Therefore to reflect the net development cost, VAT has not been allowed for in the above rates. Should the gross cost (i.e. after VAT inclusion) be required, then VAT at the ruling rate (currently 14%) should be added to all the above rates. Cognisance should be taken, however, of the effect of VAT on cash flow over a time period. This will vary according to the payment period of the individual vendor but in all cases will add to the capital cost of the project to the extent of interest on the VAT outstanding for the VAT cycle of the particular vendor. 3. For guidance with regard to the cost of buildings rated under the Green Star South Africa rating tool system, see the latest edition of the Davis Langdon publication entitled Quick Guide to Green Design Attributes.

182 XXIII Annexure 5 Monthly forecast of in-contract building costs (Haylett formula) Work group 180 Lump Sum Domestic Buildings (February 1991 = 100) Forecast from: October 2014 Forecast date: December Month Index % ch Index % ch Index % ch Index % ch Index % ch Index % ch Index % ch Jan 422,9 6,3 447,3 5,8 475,9 6,4 506,7 6,5 53 5,9 564,6 5,2 592,3 4,9 Feb 427,5 6,5 450,0 5,3 482,8 7,3 513,2 6,3 54 5,7 570,3 5,1 596,5 4,6 Mar 429,5 5,7 456,5 6,3 488,3 7,0 516,0 5,7 54 5,7 572,1 4,9 599,1 4,7 Apr 431,1 5,8 459,5 6,6 488,2 6,2 518,7 6,3 54 5,8 575,6 4,9 603,6 4,9 May 432,7 6,2 458,0 5,8 489,5 6,9 521,3 6,5 55 5,8 578,1 4,8 606,8 5,0 Jun 434,2 6,0 460,1 6,0 492,2 7,0 522,8 6,2 55 5,8 579,5 4,8 609,2 5,1 Jul 436,9 5,7 465,2 6,5 496,0 6,6 525,5 6,0 55 5,7 582,2 4,8 612,7 5,2 Aug 436,9 5,5 467,0 6,9 498,1 6,7 527,3 5,9 55 5,7 583,2 4,6 614,4 5,4 Sep 438,2 5,4 470,0 7,3 498,5 6,1 528,0 5,9 55 5,7 584,5 4,7 616,4 5,5 Oct 439,5 5,3 471,3 7,2 500,7 6,2 529,8 5,8 55 5,6 585,7 4,7 618,5 5,6 Nov 441,4 5,3 471,8 6,9 503,0 6,6 532,2 5,8 56 5,5 589,4 4,9 623,3 5,8 Dec 442,9 5,3 472,7 6,7 504,0 6,6 533,9 5,9 56 5,3 589,6 4,8 623,2 5,7 Avg. 434,5 5,7 462,5 6,4 493,1 6,6 522,9 6,1 552,7 5,7 579,6 4,9 609,7 5,2 Source: This table is an extract of the Building Cost Report of Medium-Term Forecasting Associates, P O Box 7119, Stellenbosch, 7600, Tel , and is published with their permission.

183 XXIV Annexure 6 Absa home building-cost index 2000 = 100 : Quarter Index % change on previous year Quarter Index % change on previous year 1999:2 86,6 5,2% 2007:2 236,7 11,9% 1999:3 89,4 7,1% 2007:3 240,1 9,2% 1999:4 92,2 9,7% 2007:4 245,0 7,9% 2000:1 96,1 14,1% 2008:1 253,6 9,9% 2000:2 99,4 14,8% 2008:2 256,2 8,2% 2000:3 101,5 13,5% 2008:3 258,7 7,8% 2000:4 103,0 11,7% 2008:4 262,0 6,9% 2001:1 105,3 9,5% 2009:1 264,6 4,4% 2001:2 107,5 8,1% 2009:2 273,4 6,7% 2001:3 111,4 9,7% 2009:3 277,4 7,2% 2001:4 116,0 12,6% 2009:4 277,7 6,0% 2002:1 118,9 13,0% 2010:1 287,1 8,5% 2002:2 122,1 13,6% 2010:2 294,3 7,7% 2002:3 126,7 13,8% 2010:3 295,7 6,6% 2002:4 131,8 13,7% 2010:4 302,1 8,8% 2003:1 137,3 15,5% 2011:1 303,8 5,8% 2003:2 143,1 17,2% 2011:2 302,8 2,9% 2003:3 149,0 17,6% 2011:3 311,3 5,3% 2003:4 156,4 18,7% 2011:4 319,1 5,7% 2004:1 163,8 19,3% 2012:1 319,5 5,2% 2004:2 170,2 18,9% 2012:2 319,7 5,6% 2004:3 175,3 17,6% 2012:3 323,1 3,8% 2004:4 180,2 15,2% 2012:4 329,0 3,2% 2005:1 185,8 13,4% 2013:1 336,5 5,3% 2005:2 192,1 12,9% 2013:2 343,6 7,5% 2005:3 198,2 13,0% 2013:3 351,3 8,7% 2005:4 204,3 13,3% 2013:4 353,3 7,4% 2006:1 208,4 12,2% 2014:1 359,2 6,7% 2006:2 211,6 10,1% 2014:2 372,1 8,3% 2006:3 219,8 10,9% 2014:3 376,1 7,1% 2006:4 227,1 11,2% 2014:4 381,5 8,0% 2007:1 230,8 10,8% 2015:1 394,0 9,7% Source: ABSA. Calculated from Absa home mortgage data, viz. value of houses to be built divided by number of m².

184 XXV Annexure 7 BER Building Cost Index (non-residential tender prices) 2005=100 First quarter Second quarter Third quarter Fourth quarter Average ,4 147,0 141,2 157,5 145,3 % ch 18,9 10,6 14,9 13,8 14, ,7 151,0 140,9 145,6 144,0 % ch 2,4 2,7-0,2-7,6-0, ,7 144,8 142,0 142,4 143,7 %ch 5,1-4,1 0,8-2,2-0, ,8 149,2 147,8 156,7 148,6 %ch -3,4 3,0 4,1 10,0 3, ,3 156,1 161,4 164,9 158,9 %ch 8,9 4,6 9,2 5,2 6, ,0 165,7 173,3 171,8 170,5 %ch 11,5 6,1 7,4 4,2 7, ,4 185,0 189,8 186,7 185,0 %ch 4,3 11,6 9,5 8,7 8,5 Source: This table is an extract of the Building Cost Report of Medium-Term Forecasting Associates, P.O. Box 7119, Stellenbosch, 7600, Tel , and is published with their permission. The last few months are always subject to change.

185 XXVI Annexure 8 Prime overdraft rate at month-end (%) (proxy for trends in mortgage rates*) Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year ,3 20,3 20,3 19,3 19,3 19,3 18,3 18,3 18,3 18,3 17,3 17,3 18, ,3 16,3 16,3 16,3 16,3 16,3 16,3 16,3 16,3 16,3 15,3 15,3 16, ,3 15,3 15,3 15,3 15,3 15,3 15,3 15,3 16,3 16,3 16,3 16,3 15, ,3 17,5 17,5 17,5 17,5 17,5 18,5 18,5 18,5 18,5 18,5 18,5 17, ,5 18,5 18,5 19,5 20,5 20,5 19,5 19,5 19,5 19,3 20,3 20,3 19, ,3 20,3 20,3 20,3 20,3 20,3 20,3 20,3 20,3 19,3 19,3 19,3 20, ,3 19,3 18,3 18,3 18,3 22,3 24,0 25,5 25,5 24,5 23,5 23,0 21, ,0 21,0 20,0 19,0 19,0 18,0 17,5 16,5 16,5 15,5 15,5 15,5 18, ,5 14,5 14,5 14,5 14,5 14,5 14,5 14,5 14,5 14,5 14,5 14,5 14, ,5 14,5 14,5 14,5 14,5 13,8 13,5 13,5 13,0 13,0 13,0 13,0 13, ,0 14,0 15,0 15,0 15,0 16,0 16,0 16,0 17,0 17,0 17,0 17,0 15, ,0 17,0 17,0 17,0 17,0 15,5 15,5 14,5 13,5 12,0 12,0 11,5 15, ,5 11,5 11,5 11,5 11,5 11,5 11,5 11,0 11,0 11,0 11,0 11,0 11, ,0 11,0 11,0 10,5 10,5 10,5 10,5 10,5 10,5 10,5 10,5 10,5 10, ,5 10,5 10,5 10,5 10,5 11,0 11,0 11,5 11,5 12,0 12,0 12,5 11, ,5 12,5 12,5 12,5 12,5 13,0 13,0 13,5 14,0 14,0 14,0 14,5 13, ,5 14,5 14,5 15,0 15,0 15,5 15,5 15,5 15,5 15,5 15,5 15,0 15, ,0 14,0 13,0 13,0 11,0 11,0 11,0 10,5 10,5 10,5 10,5 10,5 10, ,5 10,5 10,0 10,0 10,0 10,0 10,0 10,0 9,5 9,5 9,0 9,0 9, ,0 9,0 9,0 9,0 9,0 9,0 9,0 9,0 9,0 9,0 9,0 9,0 9, ,0 9,0 9,0 9,0 9,0 9,0 8,5 8,5 8,5 8,5 8,5 8,5 8, ,5 8,5 8,5 8,5 8,5 8,5 8,5 8,5 8,5 8,5 8,5 8,5 8, ,0 9,0 9,0 9,0 9,0 9,0 9,3 9,3 9,3 9,3 9,3 9,3 9, ,3 9,3 9,3 9,3 9,3 9,3 Source: SARB *Average mortgage rates for new bonds are, on average, below the prime overdraft rate. Individual mortgage rates will depend on the creditworthiness of the mortgagor.

186