Rode's Sales

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What it is:

This is a new Web-based product that analyses and reports on actual non-residential property transactions.

It is continuously updated by our panellists. The target market is anyone who has to estimate market values of commercial and industrial properties, as well as vacant land.

It estimates capitalization rates and calculates sales prices per square metre that are based on actual transactions in contrast to the opinion surveys underlying Rode’s Report. Users of Rode’s Sales are advised to make use of this information in conjunction with Rode’s Report.

How we compile the report:

Initially, this report only covered the Cape Peninsula, but we are now gradually expanding the geographic footprint to the whole of South Africa.

We compile the information as follows:

• A panel of brokers, banks and auctioneers complete online questionnaires as and when they become aware of a new, concluded sale (a sale is concluded when all suspensive conditions have been met).

• To get the survey started, we encouraged data on back sales that took place as long ago as in 2008.

In the questionnaire, we ask the panellist for the quality grading of the property and, as a check, the market rental. Where the quality grade and the estimated market rental rate do not correlate well, we tend to put more reliance on the estimated market rental rate because we believe that active market players have a better understanding of the market rental rate than the grading system. This is especially true of industrial properties.

• After editing the questionnaires, we estimate the standard capitalization rate by using the market rental of the sold property, deducting the market operating costs, and dividing the resultant net market income by the sales price.

• The information supplied by the panellist is checked by comparing it with market rentals and operating costs published in Rode’s Report. Thus, the capitalization rates reflected in this publication are derived or implied rates, assuming away existing leases and assuming the property is fully let at market rentals. This is the same assumption that valuers have to make for general valuations (GVs) in terms of the Municipal Property Rates Act (MPRA) of 2004.

Caveat:

The disadvantage of calculating capitalization rates by following up actual sales (in contrast to opinion surveys, as in Rode’s Report) is of course that we are dealing with exceedingly small samples, resulting in potentially serious outliers. For this reason, we strongly advise users of Rode’s Sales to use this information in conjunction with Rode’s Report.

There are quite a number of sales where the implied cap rates are far below the market cap rates typically paid by investors. These mainly represent cases where the buyers were owner-occupiers − and this is part of the reason why these premises tend to be small. The explanation for this phenomenon is that owner-occupiers are focused on the usefulness of the premises for their business rather than property returns, and initial income return on the fixed property is, therefore, not an important factor in the investment decision.

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