The source of development booms Back

In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.

Non-residential property prices are driven mainly by two factors: falling capitalization rates and/or rising rentals.

When capitalization rates decline, the market value of non-residential properties increases. The mechanics of this relationship are analogous to those between bond prices and bond yields.

Capitalization rates often decline in response to strengthening fundamentals, as investors discount accelerating cash flows. During such periods one can expect a surge in building activity, especially when vacancy rates are quite low (as they currently are in the office market).

“But when a decline in capitalization rates is the result of a rerating based on declining interest rates only rather than growing rentals, it is unlikely that development will respond with vigour.

Consider the office property market over the last few years. Rentals hardly moved while capitalization rates declined considerably on the back of lower interest rates. Needless to say, no surge in new development took place. The reason is, of course, that the market ultimately reacts to fundamentals (income streams). Declining capitalization rates alone will not fill new buildings,” says Rode.

This is why in their publications, Rode & Associates tend to use real rentals (rather than real market values) as a proxy for the property cycle.

Rode goes on to add that declining capitalization rates do, however, mitigate the extent to which rentals need to rise to make new developments viable.

Thus the most vigorous development booms are created by rising real rentals in tandem with declining capitalization rates.
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The source of development booms

In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.

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The source of development booms

In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.

property, invest money, buy, sell, full title stands, building packages in full title upmarket complex

real estate, exlcusive estates, farms, Cornwall Hill Country Estate, Irene Farm Villages, , Elarduspark, Silver Lakes, Willow Acres, Eastern Suburbs of Pretoria, Guest houses, Wedding Venues

house, flat, plot, 1 hectare stands, big stands security estate

list property, seeking house, letting, corporate rental, upmarket houses in security estates

The source of development booms

In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.

property, invest money, buy, sell, full title stands, building packages in full title upmarket complex

real estate, exlcusive estates, farms, Cornwall Hill Country Estate, Irene Farm Villages, , Elarduspark, Silver Lakes, Willow Acres, Eastern Suburbs of Pretoria, Guest houses, Wedding Venues

house, flat, plot, 1 hectare stands, big stands security estate

list property, seeking house, letting, corporate rental, upmarket houses in security estates

The source of development booms

In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.

property, invest money, buy, sell, full title stands, building packages in full title upmarket complex

real estate, exlcusive estates, farms, Cornwall Hill Country Estate, Irene Farm Villages, , Elarduspark, Silver Lakes, Willow Acres, Eastern Suburbs of Pretoria, Guest houses, Wedding Venues

house, flat, plot, 1 hectare stands, big stands security estate

list property, seeking house, letting, corporate rental, upmarket houses in security estates

The source of development booms
In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.
property, invest money, buy, sell, full title stands, building packages in full title upmarket complex
real estate, exlcusive estates, farms, Cornwall Hill Country Estate, Irene Farm Villages, , Elarduspark, Silver Lakes, Willow Acres, Eastern Suburbs of Pretoria, Guest houses, Wedding Venues
house, flat, plot, 1 hectare stands, big stands security estate
list property, seeking house, letting, corporate rental, upmarket houses in security estates
The source of development booms
In the housing market steeply rising prices are normally followed by a rise in new development, but in the non-residential property market the source of the rise in prices is more important than the rise itself, says Erwin Rode, CEO of Rode & Associates.
property, invest money, buy, sell, full title stands, building packages in full title upmarket complex
real estate, exlcusive estates, farms, Cornwall Hill Country Estate, Irene Farm Villages, , Elarduspark, Silver Lakes, Willow Acres, Eastern Suburbs of Pretoria, Guest houses, Wedding Venues
house, flat, plot, 1 hectare stands, big stands security estate
list property, seeking house, letting, corporate rental, upmarket houses in security estates