South AFRICAN OFFICE SECTOR AS AN INVESTMENT OPPORTUNITY

Table OF CONTENTS

Declaration

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Chapter 1: THE RESEARCH BACKGROUND

1.1Introduction

1.2The research job statement

1.3The research inquiries

Chapter 2: BRIEF REVIEW OF THE RELATED LITERATURE

2.1Real Estate Investment as a Wealth Creation Tool

2.2Real Estate Investment Model

Chapter 3: Analysis OF THE SOUTH AFRICAN COMMERCIAL OFFICE SECTOR

3.1Position of South African Listed Property Sector

3.1.12012 Performance

3.1.22013 Performance

3.1.3First One-fourth of 2014 Performance

3.2Status of South African Commercial Property Market

3.2.12012 Performance

3.2.22013 Performance

3.3Condition of South African Office Sector

3.3.1Nominal Gross Market Rental Growth across All Grades of Regional Offices

3.3.2Nominal Growth of Regional A-Grade Office Gross Market Rentals

3.3.3Regional Pioneer-Grade Office Gross Market Rentals

3.3.4Regional A+-Grade Office Gross Market Rentals

3.3.5Regional A+-Grade Covered Reserved Parking Gross Market Rentals

3.3.6Rental Escalation Ratess on New Leases across All Grades of Regional Offices

3.3.7Typical Gross Outgoings for All Grades of Regional Prime Offices

3.3.8Escalation Ratess on Outgoings across All Grades of Regional Offices

3.3.9Capitalisation Ratess for A-Grade Multi-Tenanted Regional Offices

3.3.10Typical Rent Free Periods across All Grades of Regional Offices

3.3.11Regional Vacancies

Chapter 4: Summary, CONCLUSIONS AND RECOMMENDATIONS

4.1Summary and decisions

4.2Recommendations

mentions

Chapter 1: THE RESEARCH BACKGROUND

1.1Introduction

South Africa’s four traditional plus categories are equities, belongings, bonds and hard currency. As variegation necessity to investing scheme, most investors opt to include either listed or unlisted belongings within their portfolios. Harmonizing to Jones Lang LaSalle ( 2014: 5 ) , around R15.8 billion of the R29 billion worth of sale minutess in 2013, an approximative 54.00 % , occurred within the South African office sector. The value of minutess in the office sector improved from R7.6 billion in 2012 to R15.8 billion in 2013, an addition of around 109.00 % . Approximately 60.00 % of all sale minutess in 2013 occurred in the decentralized office nodes of Gauteng entirely. The important addition in the value of minutess was attributed to the aggressive acquisition of quality office belongingss by listed belongings financess. The most outstanding dealing in 2013 was Growthpoint’s purchase of The Towers in Alice Lane, Sandton Central Business District ( CBD ) from Tiber on a 7.40 % output for R563.6 million.

Investors’ reappraisal of the abovementioned informations may go forth many with the perceptual experience that the office sector might presently be the best executing belongings sector in South Africa. In order to find the truth of such a perceptual experience, most investors will carry on a thorough analysis of South Africa’s listed belongings sector, professionally managed investing belongings portfolios and office sector on a nodal footing.

1.2The research job statement

Insufficient research by investors negatively impacts their broader apprehension of the South African office sector’s current public presentation.

1.3The research inquiries

  • How has the South African listed belongings sector been executing in comparing to other plus categories over the short term?
  • How has the South African office sector been executing in relation to the national retail – and industrial sectors since 2012?
  • How are the assorted nodes of the South African office sector presently executing?

Chapter 2: BRIEF REVIEW OF THE RELATED LITERATURE

2.1 What is outsourcing?

Outsourcing may be defined as a contractually managed relationship between a seller and an endeavor whereby the seller undertakes duty for a concern map of the endeavor, which may hold been performed by in house staff ( White and James, 1996, p. XIV ; Barett, 1995, p. 124 ) . It can more briefly be described as the catching of functional specializers to pull off concern units that lay outside the model of the organisations chief activities ( Dominguez, 2006, p. 5 ) .

Quelin and Duhamel describe outsourcing as the operation of switching a map antecedently governed internally to an external provider through a long-run contract, and affecting the transportation of staff to the seller for the house. Harmonizing to their definition, five characteristics typify strategic outsourcing:

  • A close nexus between outsourcing procedures and the cardinal success factors of a house in an industry.
  • The transportation of ownership of a concern map antecedently internalised, frequently including

a transportation of forces and physical assets to the service supplier.

  • A planetary contract, longer and denser than a classical subcontracting understanding.
  • A long-run committedness between the client and the service supplier.
  • A contractual definition of service degrees and of each partneris duties.

Outsourcing is a procedure whereby an administration transfers a map, antecedently governed internally, to an external 3rd party via a service degree understanding. It by and large involves an administration contractually confabulating its staff and direction duty to an independent seller ( Quelin and Duhamel, 2003: 652 ; Barrett, 1998: 124 ) . Brown and Wilson ( 2005: 20 ) define outsourcing as the ‘act of obtaining services from an external source’ .

2.2 What can be outsourced?

Outsourcing it non limited to services but besides embraces concern procedures. An administration can outsource any map it considers non-core and supportive of its chief concern. Harmonizing to Unnico ( 2001 ) services being outsourced by administrations include:

Table 1: Servicess being outsourced

  • Custodial
  • Architecture
  • Rubbish
  • Security
  • Evidences
  • Food
  • Plant
  • Facilities Management
  • Space
  • Mailroom
  • Records
  • Moves
  • Reprographics
  • Energy
  • Audio Visual
  • Cleanroom
  • Commissioning
  • Logisticss
  • Transporting
  • Integrated Facilities Management
  • Subcontractor Management
  • Storeroom
  • Everyday Care
  • Production

Brown and Wilson ( 2005: 22-23 ) states that the most prevailing commercial maps being outsourced by administrations are information engineering, disposal, distribution and logistics, finance, human resources, fabrication, contact Centres / call Centres, gross revenues / selling, existent estate / installations direction and transit. The most prevailing elements of concern outsourcing encompass:

Table 2: Component of corporate outsourcing

  • Human Resource Services
  • Knowledge and Decision Servicess
  • Operationss Support Servicess
  • Selling Servicess
  • Customer Interaction Services
  • Back Office Transaction Processing
  • Information Technology and Software
  • Operationss Finance and Accounting Servicess

2.3Why outsource?

The concern environment as we know it changes continuously. The chief drivers of such alteration are the revolution of engineering, globalization and fiscal force per unit area. In order for administrations to last and thrive, it is imperative for them to concentrate on their nucleus concern maps. Core concern maps are nevertheless reliant on non-core concern maps and it is hence indispensable for administrations to hold a clear scheme to their support operations ( Lee and Harris, 2001: 25-29 ) . Harmonizing to Brown and Wilson ( 2005: 45-47 ) the chief drivers for outsourcing are:

  • Fast trailing of re-engineering benefits ;
  • Entree to world-class competences ;
  • Cash injection from selling off assets to 3rd party ;
  • Redeployment of internal resources ;
  • Need to re-evaluate debatable maps ;
  • Release and handiness of capital ;
  • Enhanced company focal point ;
  • Risk minimization ;
  • Entree to external resources ; and
  • Reduced operating costs.

2.4Risks of outsourcing

In order for an administration to make up one’s mind whether to outsource a concern support service or procedure, it need to analyze the hazards involved with outsourcing. Harmonizing to Harmonizing to Hinks and Hanson** ( 2001: 48-49 ) the disadvantages of outsourcing are:

  • Inefficient service proviso ;
  • Non-realisation of projected cost nest eggs linked to outsourcing ;
  • Excessive costs associating to the re-absorption of outsourced maps ;
  • Vulnerability relative to an organisation’s nucleus concern ;
  • Hazard of unexpected prostration of service supplier ;
  • Fixed term contracted service suppliers non upgrading engineering and preparation ;
  • Service supplier sing procedure – or information engineering failure ;
  • Overreliance on service provider’s support service ;
  • Dishonest behavior by service supplier ;
  • Security and confidentiality breaches by service supplier ;
  • Sabotage by service supplier ;
  • Breakdown of relationship between an administration and a service supplier ;
  • Disjunction between non-core map managed by service supplier and nucleus concern managed by administration ;
  • Organisation’s fight may be affected negatively should a service supplier battle financially and be unable to put in technological progresss ;
  • Negative impact on company civilization, operations and concern aims ;
  • Incompatibility as a consequence of an administration and a service provider’s contrasting concern aims, work patterns and concern moralss ;
  • Reduced strategic input ;
  • Value loss due to atomization ;
  • Strategic disruption and communicating opacity between an administration and a services supplier ; and
  • Loss of cardinal staff, expertness and cognition.

2.5Benefits of outsourcing

It is imperative for an administration to analyze the benefits of outsourcing, and to weigh them up against the hazards associated with contracting-out, before taging a determination of whether to outsource or non. Harmonizing to Hinks and Hanson** ( 2001: 48-49 ) the advantages of outsourcing are:

  • ‘Reduced / variable operating expenses ;
  • Transportation of operating expenses from fixed to variable position ;
  • Removal of non-core operations allows direction and investing to concentrate on the primary concern activity ( the nucleus procedure ) ;
  • Savingss in office infinite and equipment commissariats ;
  • Possible staff cost decreases ;
  • Removal of uncertainness about future costs of keeping effectual and competitory concern support ;
  • Reduced hazard of dearly-won mistakes originating from ignorance of the non-core patterns ;
  • Investing hazard transportation ;
  • Excellence of service can be achieved instantly ;
  • The service supplier will be dedicated to that activity ( no larning curve of division of involvements ) ;
  • Access to market fight and technological currency in the service proviso ;
  • A retrenchment of belongings committednesss through outsourcing ;
  • Opportunity to acquire the company service proviso out of a rut ;
  • The simulation of new solutions to jobs from the appropriate commixture of different attacks ;
  • Scope for retrenchment ;
  • Additions options for organizational re-structuring through belongings and human resource direction flexibleness ;
  • Access to specialist cognition ;
  • Wider calling range for staff ;
  • Good in a fast-developing and / or extremely technological country ;
  • Increased efficiency ;
  • Decreased head count ;
  • Decreased cost of service ;
  • Entree to first support ; and
  • Transportation of concern and risk’ .

2.6Outsourcing Decision Procedure

Chapter 2 brown and Wilson

2.7Role of Facilities Management Service Provider

2.8Selection of Facilities Management Service Provider

Chapter 6 brown and Wilson

Chapter 5 wiley from 5.9 onwards

Chapter 3: Analysis OF

3.1Position of South African Listed Property Sector

3.1.12012 Performance

Chapter 4: Summary, CONCLUSIONS AND RECOMMENDATIONS

4.1Summary and decisions

It is apparent from the research conducted, that even though the South African office sector’s entire return improved from 11.90 % in 2012 to 13.60 % in 2013, the sector’s public presentation remains inferior to that of the industrial – and retail sectors.

Cape Town CBD remains the best acting metropolis Centre in South Africa. The top regional decentralized office nodes are Century City in Cape Town, La Lucia Ridge in Durban, Sandton CBD in Johannesburg and Menlyn in Pretoria.

The South African office sector might retrieve during the class of 2014, should gross domestic merchandise growing and employment figures improve, pending the execution of the National Development Plan by the South African Government.

4.2Recommendations

Investors should guarantee that they undertake equal research in order to set up the true public presentation of a sector. Inadequate research can ensue in hapless investing determinations. It is apparent from the research that even though the office sector achieved the highest entire investing minutess value of all three sectors in 2013, it remains the bottom performing artist in footings of entire return.

Mentions

Capgemini and RBC Asset Management, 2013.World Wealth Report 2013. [ on-line ] Capgemini and RBC Asset Management. Available at: hypertext transfer protocol: //www.capgemini.com/resource-file-access/resource/pdf/wwr_2013_0.pdf [ Accessed 08 May 2014 ] .

Catalyst Fund Managers, 2013.Listed Property Sector Monthly Overview January 2013. [ on-line ] Catalyst Fund Managers. Available at: hypertext transfer protocol: //www.catalyst.co.za/documents/fundDocs/monthlyReview/catalystDomestic/2013/monthlyReportJan2013.pdf [ Accessed 08 May 2014 ] .

Catalyst Fund Managers, 2014a.Listed Property Sector Monthly Overview January 2014. [ on-line ] Catalyst Fund Managers. Available at: hypertext transfer protocol: //www.catalyst.co.za/documents/fundDocs/monthlyReview/catalystDomestic/2014/monthlyreportJan2014.pdf [ Accessed 08 May 2014 ] .

Catalyst Fund Managers, 2014b.South African Listed Property Review April 2014. [ on-line ] Catalyst Fund Managers. Available at: hypertext transfer protocol: //www.catalyst.co.za/documents/fundDocs/monthlyReview/catalystDomestic/2014/Monthly % 20Report % 20Apr % 202014.pdf [ Accessed 08 May 2014 ] .

Cloete, C.E. , 2005.Property Investing in South Africa. 2nd erectile dysfunction. Capital of south africa: The South African Property Education Trust.

IPD, 2013.South African belongings delivers improved public presentation in 2012. [ imperativeness release ] , 25 March 2013, Available at: hypertext transfer protocol: //www.ipd.com/about/media_centre/2013/SAPOA % 20 % 20IPD % 20South % 20Africa % 20Annual % 20Property % 20Index.pdf [ Accessed 08 May 2014 ] .

IPD, 2014.South African belongings delivers stable yet impressive public presentation in 2013. [ imperativeness release ] , 26 March 2013, Available at: hypertext transfer protocol: //www.ipd.com/about/media_centre/news_archive/2014/IPD % 20South % 20Africa % 202014 % 20Annual % 20Property % 20Index % 20PR.pdf [ Accessed 08 May 2014 ] .

Jones Lang LaSalle, 2014.Commercial Real Estate Transaction Review: South Africa. [ on-line ] Jones Lang LaSalle. Available at: hypertext transfer protocol: //www.joneslanglasalle.co.za/ResearchLevel1/JLL % 20Commercial % 20Real % 20Estate % 20Transaction % 20Review % 20South % 20Africa % 202014.pdf [ Accessed 08 May 2014 ] .

Phyrr, S.A. ; Cooper, J.R. ; Wofford, L.E. ; Kaplin, S.D. ; Lapides, P.D. , 1989.Real Estate Investing: Strategy, Analysis, Decisions. New York: Wiley.

Rode and Associates, 2014.Rode’s Report 2014:1. Bellville: Rode and Associates.

SAPOA, 2014.Office Vacancy Survey Report Q1:2014. [ on-line ] SAPOA. Available at: hypertext transfer protocol: //www.cmsignition.co.za/download/files_1047/SAPOAOfficeVacancyReport_April2014.pdf [ Accessed 08 May 2014 ] .