NEWS FROM MADISON PROPERTY FUND MANAGERS

IMPROVED RENTALS WILL BOOST RETURNS FROM LISTED PROPERTY COMPANIES

In the plethora of comment from the business community that followed Eskom’s announcement that they are unlikely to have any spare capacity until 2012/2013 - and that greenfield development projects, by and large, would now be put on hold - it was interesting to hear Mike Flax, Executive Director of Madison Property Fund Managers, say that the current cloud, while wholly unwelcome, does have a silver lining.

This, in Flax’s view, is that industrial, commercial and residential rentals, which have already moved upwards significantly over the last six months, will be given a further boost by the inevitable shortages of space that will follow on the ban on new development.

“Rentals in all sectors, other than retail, will probably increase at above 15% compound, i.e. well ahead of the inflation rate, for the next five years,” said Flax. “The upward rental cycle, which many had thought might ease quite soon, now seems set to continue for far longer.”

Retail rentals, he said, will probably stay at current levels for the next one and half to two years because consumer spending has been hit by the interest rate rises – and until rates drop by at least 2% to 3% consumers will continue to cut back. However, an upswing in the consumer sector, he predicted, will take place towards the end of the first quarter of 2009 and should increase steadily until the year-end.

Property values in this scenario, said Flax, are likely to drop or remain stagnant for at least a year, even though non-retail rentals will rise. This year is, therefore, a good time to buy, perhaps especially in the residential sector which has seen a 5% to 10% drop in values in many areas.

How will the situation he foresees impact on Madison, which manages property and property development for Redefine, Hyprop Investments and Apex-Hi Properties? Flax said that with 40% of this group’s portfolio tied into non-retail property, they are in a strong position to benefit from the extended rental cycle.

“Traditionally,” he said, “retail has outperformed other property sectors and we are confident it will do so again once consumer spending has recovered. One thing is absolutely certain and that is that many of our funds’ retail centres will be upgraded during the coming period so as to position them for the next upswing and gain market share in the current tightening conditions.”

Asked how the Madison development programme will now shape up, Flax said that despite the “almost smothering” impact of the Eskom difficulties on greenfield projects, upgrades, extensions and a limited number of new projects should see Madison involved in some R3 billion worth of development from now until the end of 2009.

The company’s strength, he said, continues to be that its management is pared down, young and energetic. Above all, he said, it is very close to the market and often a jump ahead of its opposition in seeing new opportunities.

“In Madison,” he said, “we have, I think, managed to inculcate a culture which cuts through red tape. We give our young executives a great deal of freedom and this enables them to be innovative and get on with the job.”

- MIKE FLAX

For further information contact Mike Flax on 021 425 1000.