The current commercial property market conditions indicate that this is a "tenant market". But what does that mean? This is a market that favours the tenant in that rental rates are declining. This &nbsp;enables tenants to command cheaper rentals through negotiation.&nbsp;We'd advise you to familiarise yourself with rental and purchase options available in the market, and to assess the associated benefits of both.



For example, we're seeing that concluding a longer term lease can lead to lower initial rental rates and control annual escalation levels. In our experience, current bank funding criteria make the bulk of purchase opportunities unattractive to potential ‘owner-occupiers’, which in turn translates back to leasing being a more attractive option.

For any queries regarding commercial property transactions contact Simon (083) 261 2861.

&nbsp;

Commercial Property: Market Conditions

When it comes to commercial property, there are different lease structures available, all of which have different outcomes for the landlord and tenant. Two of the most common scenarios are illustrated above: a&nbsp;gross lease&nbsp;agreement, and a&nbsp;triple net fully recovering&nbsp;agreement.



In a gross lease scenario, the landlord takes over most of the management and responsibility for collections, and may well charge a premium for the service and convenience.

With a triple net lease agreement, the onus is on the tenant to manage the maintenance, rates and consumption costs associated with the premises or lettable area. This kind of lease may mean rental savings for the commercial tenant, but the downside is that these tasks take up significant time - and so the tenant may be distracted from their core competencies.

If you're a potential commercial tenant, we'd advise you to be aware of the pitfalls, challenges and opportunities inherent to each type of lease agreement.

Retaining the services of a commercial property professional is a good way to ensure that the potential property has been appropriately assessed from a suitability perspective and that you have the right type of lease agreement for your situation. Overall, you should take into account that with the high costs associated with moving premises, businesses are increasingly electing to renew leases in existing facilities.

If you're looking to renew your commercial lease, we can help with the renewal process in order to secure market-related pricing and fair lease terms.

For any queries contact Simon (083) 261 2861.
&nbsp;

Commercial Lease Renewal: Tenant Representation

Are you looking to purchase head office commercial premises for your business? There is certainly a level of prestige to owning a business address, particularly for a mature business that doesn't have significant fluctuations in terms of space requirements. The associated savings on commercial property rentals in the long term can be significant, provided that the investment is made in a prime location where property values are consistently improving.

Sectional title units within secure office parks are becoming an increasingly popular way of accessing the local commercial property market. This is mainly because the listed and larger private funds have made it challenging to purchase attractive freehold opportunities in blue chip locations. In these locations, existing opportunities are limited, and significant financial muscle is required to consistently make a success of commercial property acquisitions.

Most SMMEs and private businesses don't have a responsibility to external shareholders for frequent returns, for example via dividends. In these cases, all gross profits can be reinvested back into the property holdings. These investments can even be instituted as a means of retirement or pension savings for directors and employees – which gives participants an opportunity to manage their retirement wealth on a more direct platform.

Another advantage to owner-occupiers is that commercial property holdings can be used as collateral to secure funding. This provides scope for wealth creation, particularly where lengthy, significant lease commitments are in place. Funding for commercial property transactions can be secured on long-term fixed bond rates where forward repayment terms can be accurately forecasted.

For advice on property acquisitions and funding contact Simon (083) 261 2861.

The Benefits of Being an Owner-Occupier

While the European debt crisis threatens to push the global economy into recession, it also poses a challenge for South Africa in terms of boosting growth and creating jobs.

South Africa's economy growth is currently in the doldrums as manufacturing and mining output declines. Europe buys about a third of South Africa's manufactured goods, and, with their budgets now having been cut to ease the debt crisis, demand has dropped, which is in turn stifling any current prospects of meaningful GDP growth in South Africa.

South Africa's current economic climate also impacts the commercial and industrial property industry. This is because businesses have increasing ambitions to purchase operating premises in reaction to the low interest rate cycle currently in play both locally (with all time lows) and globally. However, purchasing commercial property in the current market conditions may prove shortsighted, because the possibility of higher inflation round the corner means that interest rates may well rise again. And, should the financial crisis in Europe escalate, there is risk of ‘capital flight’ where investors lose faith in emerging markets such as South Africa and invest their money elsewhere.

Without any likely immediate relief from the European debt crisis, business managers should simulate likely future financial scenarios before acquiring new premises, as this could hamper any potential future growth. This may mean renting instead of buying for the foreseeable future. While renting commercial space prevents the investment potential of buying it, there are advantages. These include having the flexibility to downscale as the debt crises plays out, and having the liquidity to quickly expand or relocate premises once Europe is on the recovery path.

In addition, any long-term lease agreement can be constructed to result in the tenant owning the premises by the time the lease terminates. Businesses should make sure they take all relevant factors into consideration before making a decision that could ultimately affect the longevity of their operations.

For any property related advice contact Simon (083) 261 2861.

The European Debt Crisis and the South African Commercial Property Sector

With ever increasing consumption costs and a greater awareness of the impact of carbon emissions, tenants are becoming increasingly motivated to occupy buildings that are resource efficient. The problem is that Green Star SA rated buildings are hard to come by, given the relative infancy of carbon neutral building development in South Africa. As a result, landlords usually charge premium rental rates for them.



When it comes to energy management, many people are unaware that South African offices and warehouses have access to technologies that accurately measure, manage and correctly apportion energy consumption costs to respective occupants. Instead, the majority of South African landlords and management companies clumsily charge blanket pro-rata rates across entire buildings and business parks – sometimes even adding additional discretionary charges for managing this process.

To counteract this, property consultants should go the extra mile in ensuring that their clients – the prospective tenants – are well aware of the monthly consumption charges involved in any long term lease commitment. They should also make their clients aware that the cost of electricity is likely to increase significantly given the price hikes experienced over the past four years.

Andy McKay of Green Wave Automation recommends a couple of effective ways to take action and manage costs, which in turn can increase savings.

“The first step for any company is to install power meters to establish a baseline energy consumption and to trend usage," says McKay. "By installing a ‘web based’ power metering system you are putting in place a permanent solution that allows you to monitor and improve your efficiency on an ongoing basis from any location. The solution displays usage every 30 minutes, allowing you to pinpoint areas where you consume the most and identify peak periods during the day. Not only can you log in and monitor usage, you can compare month by month or site by site, verify Eskom bills (kVA &amp; kWh) and analyse your power quality”.

“Once consumption is profiled you can tackle areas where you can maximise savings. The degree of savings is dependent on many factors i.e. the type of building, tenant working patterns, building configuration and how efficient current equipment is. Building Management Systems (BMS) are used to bring all utilities onto one ‘easy to use’ web based platform, automating monitoring and control of air-conditioning (HVAC), lighting, UPS, generators, lifts, fire alarms, boilers, power meters etc, increasing the efficiency of your building. The system is designed to manage peak demand by turning off non-essential equipment or throttling back equipment during peak periods. Other savings are achieved by installing power factor correction, replacing inefficient lamps with efficient ones and installing occupancy sensors to control lights and air-cons according to occupation.”

Once these systems are instituted, buildings will be monitored and controlled more efficiently, which ultimately leads to lower monthly electricity bills and lower operating costs for tenants.

Commercial Tenants: Reduce Your Consumption Bills

An issue that has become increasingly prevalent for commercial property brokers is the ability to differentiate themselves from the competition within the marketplace. Conversely, tenants and other potential clients find it difficult to know what to look for in a&nbsp;competent real estate professional versus one who is ill-equipped to provide comprehensive services. For all property brokers wanting to gain market share, therefore, the challenge is to reveal their competence to potential clients before any critical decisions or commitments are made.


Today’s savvy consumer is connected to a myriad of resources and information, and all demand service levels that produce real results. For commercial property brokers, it's critical to be able to deliver relevant opportunities to their clients that more than meet their requirements.

At Black Pepper Properties, the majority of our resources are targeted at commercial property owners and tenants, as well as anyone with a commercial property requirement. Our goal is to uncover solutions in the market place that will work best for our clients.

In our experience, five key factors that will go a long way to building credibility as a commercial property broker are:
<ul>
 	<li>A direct connection to decision makers</li>
 	<li>Experience in deal making</li>
 	<li>The ability to make informed decisions</li>
 	<li>Being Technologically savvy</li>
 	<li>Achieving an optimal result</li>
</ul>
Clearly, not all commercial property brokers have the same levels of skill or dedication, while nearly all consumers demand high quality results. This incongruence creates a demand for service differentiation within today’s commercial property industry. The end result is that meeting this service level may mean the difference between simply competing with other property brokers and gaining significant market share.

Commercial Property: Differentiation Is Key

Whether or not you decide to lease or purchase commercial premises is not clear cut. In order to decide which is the best option for you, you should first do an in-depth assessment of the short, medium and long-term requirements of your business.

In most cases, leasing commercial property makes the most sense, given that the majority of businesses are unable to predict their future space requirements for extended periods of time. Leasing also provides flexibility around fluctuating variables like space requirements, optimal locations and budgetary constraints.
The exception to this is if your operating site is crucial to the ongoing operations of your business. In this case, purchasing your commercial property would be advisable &nbsp;– particularly if you think you'll occupy the commercial premises for a period of five years or longer.

Should your business need to formalise a commercial real estate strategy around your business objectives, contact an experienced, knowledgeable property practitioner for assistance.

We're on hand to help - call Simon at Black Pepper Properties on 083 261 2861.

Leasing vs Buying Commercial Property

When buying commercial property, be aware of the significant financial hurdles involved. Funding of commercial property transactions is expensive: in most cases, &nbsp;ten year funding contract cycles are offered versus the customary 20 years for residential property.
Because of this shorter contract cycle, monthly costs are more expensive. For example, R1m borrowed on commercial property financing costs approximately R15k per month to service the debt.&nbsp;Compare this to the residential side, where borrowing R1m for residential property funding will cost approximately R9k per month.
In our experience, most funding institutions are looking for a minimum of 30% &nbsp;- 50% equity up front in order to finance commercial property transactions.
For advice on obtaining competitive bank funding terms as well as reasonable credit terms, feel free to contact Black Pepper Properties: Simon (083) 261 2861.

Commercial Property Financing

When it comes to commercial property, whether it's a warehouse, office space or other industrial premises for your business, you can either choose to rent or buy. Both have their pros and cons. When deciding which option is best for your business, the first thing to consider is the returns that the property offers versus the regular operating yields that your business generates.&nbsp;The general benchmark for commercial property is an annual return of between 10% and 18%.
If your business’s internal rate of return is higher than the returns generated through property holdings, then your business should rather look to rent premises for an extended period. If it's the other way around, then purchasing commercial property would make more sense.

If you decide that purchasing commercial space for your business makes sense, or you're looking to build up investment property assets, we would recommend consulting with experienced property practitioners.

Commercial Property: Purchase or Lease?

Although buying a commercial property can be a good investment, and can result in significant profits when you sell, there are numerous benefits to leasing commercial property. Overall, being a tenant means you save time, money and hassle - and you can be more flexible in terms of where you are located.

The main advantages with leasing commercial property as illustrated above are outlined below:
Flexibility:&nbsp;All businesses needs change over time. The flexibility you get with leasing commercial property rather than buying it makes it much easier to relocate to new premises if you need to. If you own a property and need to move elsewhere, you will typically experience delays with "back to back" property transactions, where you're selling one property in order to buy another. If you're leasing, none of these challenges exist.
Lags and Expense: If you're buying or selling a commercial property, there are usually delays with things like rates clearances, which can be hugely frustrating. Leasing a commercial property means you have none of these frustrations in terms of time lags and expense.
Defined Budgets &amp; Lease Periods: If you're renting commercial property, as the tenant you can usually determine the length of your lease commitments. What's more, when the lease is nearing expiry, you can review your business and identify future needs that you may have, such as bigger premises or moving to a building in a different location.
Growth or Downscaling:&nbsp;If you lease commercial premises, growth or downscaling can be easily accommodated without having to go through the time consuming and costly process of property disposal.
Property Management: As a tenant, the maintenance and management of your commercial premises is handled externally by a management company or landlord. Since you're not outlaying money and resources for this, you can reinvest excess funds directly back into business rather than in maintaining your business premises.

Benefits to Leasing Commercial Property

When it comes to assessing the optimal location for your commercial premises, there are several factors you should consider.



These are discussed&nbsp;below:

Suppliers and customers. These are the lifeblood of any business and so you should consider them carefully when choosing your location - make sure you're reasonably close to both.

Surrounding infrastructure.&nbsp;Access to highways, road infrastructure and tolling avoidance can translate into significant efficiencies if your daily operations include logistics or active sales teams.

Airports, harbours and ports:&nbsp;If your operations include shipping goods, then close proximity to airports, harbours and ports can be vitally important.

Heavy industrial activities:&nbsp;If you're engaging in heavy industrial activities, consider issues such as power supplies, noise restrictions, zoning, and the potential for contamination or pollution of the surrounding environment.

Centre of Gravity Studies:&nbsp;Centre of Gravity (COG) studies are concerned with optimising the operations within large logistics businesses. Part of this study analyses where the optimal location for your commercial premises should be. &nbsp;In most cases, you'll pay a premium for a good location. However, being in an excellent location means your business operates more efficiently - and so you may make more of a profit in the long run.

Proposed tolling systems: Beware of toll roads near your location, as these can add an extra expense to your day-to-day operations.

Future developments: &nbsp;If there are future developments planned for where you're located, this may cause traffic congestion, noise pollution, an escalation in rates or other general disturbances.

If you're considering buying or leasing commercial property, it's important to think of the factors discussed above before committing to a location. As a first step, we'd encourage you to consult with experienced, capable property practitioners when attempting to collate a relevant location assessment. Need help? Contact us today - simon@blackpepperonline.co.za

Commercial property locations: things to consider

The Consumer Protection Act (CPA) has far-reaching implications for the relationship between a commercial property landlord and tenant. The intention of the CPA is to incorporate property lease agreements, taking cognisence of the fact that leasing commercial property is deemed to be a ‘service’ in terms of the Act.

When it comes to commercial property, non-compliance with the Consumer Protection Act could have severe financial implications for the landlord. For example, if a lease agreement is declared null and void, there is the possibility of significant fines which can be, according to the Act, ‘the greater of 10% of the landlord’s annual turnover OR R1 million’.



Drafting a commercial lease from scratch that is compliant with the CPA is time consuming and expensive, and requires both an in-depth understanding of commercial property law and the intricacies of the CPA. Appointing an attorney to draft a bespoke, compliant commercial lease agreement on your behalf is expensive, so we would recommend purchasing a compliant lease template instead in order to avoid these costs.

A compliant commercial lease agreement alleviates any uncertainty around the Act in the case where minor adjustments to the agreement are required - such as when accommodating multiple tenants or buildings.

&nbsp;

The Consumer Protection Act and Compliant Commercial Lease Agreements

If you're considering buying a commercial property for investment purposes, there are several things to think about in order to ensure a sound return on investment. Here are the most important issues to consider:



<img class=" wp-image-2761 alignright" src="http://blackpepperonline.co.za/wp-content/uploads/shutterstock-investment-300x266.jpg" alt="shutterstock - investment" width="309" height="274">Balance Income with Capital Growth

When buying a commercial property for investment, &nbsp;assess both its secured forward income and potential capital growth. Forward income streams give investors an indication of viability and likely forward returns on the commercial property, so simulate future market cycles to determine how robust the investment is likely to be. Focusing purely on perceived capital growth over time can have disastrous outcomes when market conditions toughen. Overall, you should invest in commercial property that has a secure rental demand.

Consider Market Conditions and Trends

Where is the commercial property market heading over the next few months and years? Are we on a slow recovery or declining path? Good investment opportunities are always in existence as long as the necessary skills, strategy and tools are in place to successfully manage investment opportunities.

Structure the Deal Correctly

All property transactions are unique and possess certain positive and negative attributes. The ability to assess, plan and structure commercial property deals properly will always lead to increased returns, and investors lacking skills and experience in these areas will find it harder to maximise value. So, if you're new to the commercial property investment market, surround yourself with competent property practitioners who are capable of identifying and dealing with any pitfalls from a legal, pricing and commercial perspective.

Have confidence in the property developer

Use the Internet and social media platforms, such as LinkedIn, to assess a prospective developer’s track record. These days there are numerous mediums available to investors when it comes to performing due diligence before purchase. Once again, relying on your commercial property broker to recommend potential vendors is good way of ensuring that you are dealing with competent, transparent operators.

Be prepared to walk away&nbsp;

Even if an investment opportunity looks extremely attractive, if the terms, pricing or pitfalls are not optimal, be prepared to walk away. The bottom line is that successful commercial property investors know when to cut their losses - particularly when investment parameters are breached.

Commercial Property Investment Advice

Having a good awareness of capital gains tax (CGT) and the intricacies of its calculation can mean a significant tax saving when it comes to selling a property.

For example, should a married couple own a property, and either one of the couple is unemployed, it may be beneficial to change the ownership shareholding in favour of the non-income earner, for example in a 75%/25% split. When the time comes to sell the property, the greater portion of the tax burden will become the non-income earner’s responsibility and in most cases will fall below the tax threshold - which means that no or little capital gains tax will be payable.

We recommend keeping a record of all the relevant documentation relating to the property, including recording all improvements made to it over the period of ownership.&nbsp;These&nbsp;improvements can then be incorporated into the tax calculation when you sell it, which will ultimately reduce your overall tax exposure.

How to reduce your capital gains tax exposure

The recent unexpected interest rate cut in South Africa of 0.5% is related to inflation falling back within the Reserve Bank’s (3% - 6%) target band, as well as the continued slow rate of economic growth.

An interest rate cut has both positive and negative effects on the economy. On the positive side, it gives people in debt some level of relief in terms of what it costs to borrow money. &nbsp;Interest rate cuts can also improve economic activity from both a private and commercial perspective, as investors can now borrow money at a cheaper rate which they may invest into projects that will further stimulate economic activity.



The downside of lower interest rates is that investors, who rely on interest income, face the prospect of cash returns that are below the inflation rate, otherwise referred to as “negative real returns”. If one considers that a typical money market investment offers around 4.5% returns - regardless of the applicable investor’s tax rate or the actual level of inflation - it becomes clear how an interest rate cut results in negative returns for cash investments.

The prospect of negative real returns poses significant challenge to investors, as they can no longer afford to sit on cash in the bank and are forced to consider investments with more inherent risk.

In this economic climate, we would encourage investing in residential or commercial property assets that would potentially beat inflation at reasonably low levels of risk.

How could the recent interest rate cut affect investors?

Leasehold improvements, also known as Tenant Installation Allowances, ensure that leased premises are customised and best suited for a tenant’s commercial activities. In the most basic instances, leasehold improvements include items such as doors, partitioning, air conditioning, lighting and floor or wall coverings.

Costs related to leasehold improvements form part of the lease negotiations between the landlord and tenant, and one or both parties may be required to fit the bill. Costs of leasehold improvements often revert to the landlord at lease termination, or a tenant may be required to re-instate to prior condition at its expense. These costs are also often amortised over the life of the leasehold improvements or the remaining lease term – whichever is shorter.



Should a lease renewal option exist where the prospect of renewal is uncertain, the amortisation period would most often revert to the initial lease term rather than the indefinite longer term.

We have highlighted a few cost scenarios when it comes to leasehold improvements in South Africa:

&nbsp;- The landlord offers the tenant a building allowance at a rate per square meter. The tenant compensates the landlord for leasehold improvement costs through higher lease payments. The tenant works with the landlord's appointed interior architects in specifying leasehold improvements to be made, and all improvements become property of the Landlord. With this structure, the allowance is not classified as income to the tenant. Costs incurred in excess of the building allowance are borne by the tenant, capitalised on the basis of a leasehold improvement and amortised over the lease period.

- &nbsp;The tenant appoints his or her own interior architects with the landlord’s approval. The landlord may advance funds directly to the tenant or to a separate account as work progresses. As above, the tenant compensates the landlord via higher lease payments that are fully deductible. The lease could specify the landlord owns all property attached to the building but the tenant owns property that can be removed without structural damage to the building.

- The tenant structures any advance from the landlord as a loan. In this case, the tenant gets deductions for interest and depreciation while avoiding recognising any portion of the landlord’s advance as income.

To avoid tax disputes when it comes to leasehold improvements, the landlord and tenant should agree up front on the tax treatment. The tenant needs to assess the benefits of ownership against the tax implications of current income recognition.

The provisions relating to leasehold improvements can be useful when negotiating and structuring lease agreements. Where these provisions are effectively instituted, the inclusion in the landlord’s gross income of and the deduction in the hands of the tenant would be spread over the lease period.

Tax considerations when negotiating leasehold improvements

A realisation company is generally formed in order to facilitate the sale of property. From a property tax perspective, the proceeds derived from the property sale need to be classified as either capital or revenue in nature.

The advantage of disposing assets through a realisation company is that the proceeds may be treated as a capital gain. This gain is then taxable at an effective 14%, rather than the fully taxable proceeds of trading stock at 28%.

SARS tend to view realisation companies with suspicion, as they’re weary of taxpayers classifying their assets as capital when, in fact, these should be declared as trading stock. Where realisation companies do more than just realise the sale of the capital asset, their profits are regarded as gross income.



Evaluating the nature of the proceeds for tax purposes is usually based on the intention of the company. In other words, has the company sold property in a scheme of profit making, or has it merely sold assets to its best advantage?

In light of a judgment recently delivered by the Supreme Court of Appeal in a case between SARS and Founders Hill (AECI), the court took a different approach in determining whether the realisation company would maintain the intention of realising capital assets, or whether the taxpayer would be seen as trading such properties.

AECI originally acquired vast tracts of land in Modderfontein in Gauteng’s East Rand to be used for the manufacture of explosives. The bulk of the land was used as a buffer between the production plant and surrounding commercial and residential nodes. As technology and processes improved, the extent of these buffer zones could be reduced.

AECI formed a company called Founders Hill with a view to sell off the excess land - which was to be subdivided and developed for commercial and residential use.

Since Founders Hill had only one existing shareholder (AECI), the Court found that such a shareholder could have satisfactorily realised the land itself. The court found that Founders Hill had acquired the land with the purpose of both sale and development, and so regarded it as a trading company subject to income tax in respect of its activities.

This judgment changed the perception regarding realisation companies. The Supreme Court of Appeal has now ruled that the case law sets out special circumstances in which a realisation company would be recognised, rather than a general rule.

The advice to taxpayers is that without a compelling argument for using a realisation company, you may not be allowed to transform gross profits into capital gain.

In some cases, a real justification exists for a realisation company. For example, if there are numerous beneficiaries of a deceased estate, getting all the parties to agree and sign documentation would be practically impossible. A realisation company, on the other hand, allows the property to be transferred and a board to be appointed in order to manage the disposal to its ‘best advantage’, taxable at 14%.

Realisation Companies: Gross Income vs Capital Gains Tax

The structure of commercial leases in South Africa is fairly unconventional compared with the rest of the world. In South Africa, most commercial lease agreements include annual rental escalation clauses.

Generally speaking, commercial leases in Europe and North America don’t feature rental escalations. Instead, rentals are usually fixed with periodic reversions to market on a cyclical basis.

In South Africa, rental escalation clauses originated out of a need to protect Landlords against rising inflation that was experienced in the 1970’s. However, thirty plus years later, inflation levels in South Africa have been on the decline for a sustained period – and yet rental escalations on commercial leases remain. Why is this?



By raising nett rentals on an annual basis, Landlords are able to increase the value of their property assets by continually expanding their income stream. We would assume the continued existence of escalation clauses locally make economic sense to all market participants and that no unwarranted influences exist on the part of Landlords.

In our experience, local commercial property landlords tend to negotiate lease deals at below market rental rates, with a view to ramp up yields over the term of the commercial lease via rental escalations. These leases are usually concluded over periods of three to five years.

These types of below market commercial lease profiles are becoming increasingly prevalent in the current tough economic climate, and there are benefits for both Tenants and Landlords. These benefits include:
<ul>
 	<li>Tenants achieve ‘below market’ rentals at the commercial lease’s inception.</li>
 	<li>Tenants are able to budget for rental escalations in the medium to long term.</li>
 	<li>Rental escalations allow landlords to steadily increase rental streams over the lease period which in turn increases asset value.</li>
 	<li>Landlords avoid income erosion should market conditions drive property costs upwards.</li>
</ul>
When rental escalation clauses do come into play, the Consumer Price Index (CPI) is one of the globally accepted indices for determining market related escalations. Rental escalations based on CPI are there to assure the landlord’s rental streams while avoiding possible income erosion during the term of the commercial lease.

Rental Escalations on Commercial Leases

When it comes to property auctions, most commercial property investors prefer to transact on an exclusive basis with potential buyers and sellers. In an exclusive transaction, investors avoid the hype and volatility that is typically seen with most well-marketed property auctions. This hype exposes properties to a large number of potential prospects, which can lead to a ‘bidding war’ on the day, &nbsp;where prices are driven up considerably. At the same time though, commercial property auctions can also be an effective option if an investor wishes to buy or sell quickly.


Selling Through Property Auctions

For the seller, potential purchasers in commercial property auctions are usually prepared, qualified and registered to transact without any suspensive conditions in place such as due diligence clauses, the sale being subject to financing, or board approval needed as is regularly seen in private property sale transactions.

The biggest drawback to selling property in a commercial property auction is the cost. For this reason, first ensure you’re aware of the associated fee structures involved. These may include commission tariffs (usually paid for by the buyer), as well as fixed fees payable for marketing, appraisal and facilitation services whether or not the bid is successful.

Buying Through Property Auctions

If you're buying property, multi-property auctions expose you to a wide range of offerings at the same event, including such things as portfolio disposals in a single lot. Listed and large private funds often use commercial property auctions to dispose of ‘multiple assets’ in order to maximise value, eliminate long negotiation periods and reduce sale lags and transactional fees.

If you’re considering buying via a commercial property auction, we recommend that you gather as much information as you can about the property in terms of background checks through deed and company searches, as well as municipal records in order to avoid any unforeseen liabilities that may arise.

The Seller’s Favour

In summary, we believe that the property auction model favours the seller. In terms of buying as an investment, we don’t believe purchasing property on auction will consistently yield the optimal results given the associated ‘market noise’, and the limited window in which investors are required to perform.

Commercial Property Auctions - To Do or Not To Do?

Property auctions can be an effective method of selling or purchasing property. Globally, property auctions are an intense, accelerated marketing process involving the public sale of commercial, retail industrial and land assets through what is usually an open, competitive bidding process.

The South African property market was recently rocked by the fall of Auction Alliance, a leading property auction firm who for many years invested large amounts of funds and resources into establishing the auction model as an accepted, effective and trusted mode of trading property.



So how has the fall of Auction Alliance affected the South African property auction industry? We believe that the industry may suffer somewhat given that Auction Alliance was such a significant and established firm, and the fact that there was huge press attention surrounding its demise. The seemingly underhanded practices that Auction Alliance used of planting ‘ghost bidders’ to drive up prices at auction events and allegedly distributing ‘cash envelopes’ to bank employees and other influential parties have undone over a decade worth of time invested by the local property auction fraternity. The result has been a loss of faith in the property auction industry from a consumer perspective.

At the same time, we believe that despite Auction Alliance’s fall from grace, property auctions will continue to fulfill a role in the property industry, particularly as an efficient mechanism for disposal of distressed property in the banking sector. This is an increasing global trend in current times where banks’ exposure to defaulters is ever increasing. In South Africa, this exposure is compounded by expensive holding costs associated with property ownership due to the continued increases in rates and taxes levied by Government

Our blog

Post category

Commercial Property: Market Conditions

Property Insights

21 Sep 2012

Commercial Lease Renewal: Tenant Representation

Property Insights

18 Sep 2012

The Benefits of Being an Owner-Occupier

Property Insights

18 Sep 2012

The European Debt Crisis and the South African Commercial Property Sector

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13 Sep 2012

Commercial Tenants: Reduce Your Consumption Bills

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13 Sep 2012

Commercial Property: Differentiation Is Key

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11 Sep 2012

Leasing vs Buying Commercial Property

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10 Sep 2012

Commercial Property Financing

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7 Sep 2012

Commercial Property: Purchase or Lease?

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7 Sep 2012

Benefits to Leasing Commercial Property

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29 Aug 2012

Commercial property locations: things to consider

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29 Aug 2012

The Consumer Protection Act and Compliant Commercial Lease Agreements

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22 Aug 2012

Commercial Property Investment Advice

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15 Aug 2012

How to reduce your capital gains tax exposure

Property Insights

14 Aug 2012

How could the recent interest rate cut affect investors?

Property Insights

13 Aug 2012

Tax considerations when negotiating leasehold improvements

Property Insights

29 May 2012

Realisation Companies: Gross Income vs Capital Gains Tax

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21 May 2012

Rental Escalations on Commercial Leases

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14 May 2012

Commercial Property Auctions - To Do or Not To Do?

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18 Apr 2012

Auction Alliance & the Property Industry

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18 Apr 2012