Wanted: entrepreneurs to show some inner-city faith
SA's CBDs need investment and care, but a handful of companies can't do it on their own, says investment fund head
Residential investors need to club together to gain scale before they can compete in the listed property sector, Jeffrey Wapnick, managing director of Octodec Investments, said.
Wapnick spoke at a tour of his fund’s inner-city Pretoria properties. Octodec owns residential property focused in the CBDs of Johannesburg and Pretoria. It earns income of about R400m a year from these assets.
He said the inner cities of SA are in need of investment and care, and Octodec and a few other private companies could not provide this on their own.
He said he wanted to see more sustainable competition in the residential part of the commercial property market.“People are interested in residential property but I think we really need long-term competition. We see entrepreneurs and investors pop up but they often struggle to find scale. These groups need to club together and make long-term investments in inner-city buildings and their surrounds,” he said.
Octodec’s residential property portfolio includes 9,500 flats and serves 14,500 tenants.
It is managed by City Property, which Wapnick’s family started in 1968. The Wapnick family owns about 38% of Octodec.
Octodec is one of a handful of property companies listed on the JSE that has exposure to residential property. Others include Indluplace Properties, SA Corporate Real Estate and Transcend.
This type of property has come into fashion as an investment in SA. Many people in the commercial property industry believe that SA is now over-shopped, with too many malls for too few people. Offices landlords are also under pressure with stubborn vacancy levels.The most recent South African Property Owners’ Association (SAPOA) office vacancy report for July put the national vacancy rate at 11.1%. The sector’s vacancy rate has been between 11% and 12% for 11 years.
Meanwhile, demand for affordable and student housing is very strong.
Wapnick said about a third of his tenants were government staff and that Octodec had a strong relationship with the state. He said a gap for a sizable investor would be providing housing for numerous professionals and entrepreneurs who had come from other parts of Africa to work in SA and needed well-located, not necessarily suburban, accommodation.
This could be in the inner city or in new business nodes such as Rosebank.
He said a listed student housing provider may soon list in SA but only if the group had scale.Ian Anderson, the chief investment officer at Bridge Fund Managers, said people who invested in listed property companies had a lot of local and offshore choice. Any new fund that came to market this year or next would need to have scale and something special about it.
It was unlikely that fund managers would support the listing of groups with less than R1-billion in assets unless they were specialised and able to guarantee a strong grow trajectory.
Economic growth was subdued in SA so funds needed to be able to weather a tough economic cycle.