Boston, MA -- (SBWIRE) -- 06/04/2014 -- We believe that the real estate sector in South Africa will remain stable but the market will continue to face pressure in different forms. This includes tepid growth, faltering macroeconomic conditions, a volatile currency and inflation. BMI sees the South African economy posting moderate growth with real GDP expanding by just 2.2% in 2014. Despite these pressures, the real estate market in South Africa remains one of the most profitable and attractive in the region.

South Africa's economic prospects have weakened due to inflation, inability to address corruption and weakening foreign investor confidence. Foreign direct investment into South Africa dropped to USD4bn in 2012 from USD6bn in 2011, according to the latest data by the United Nations Conference on Trade and Development. In order to consolidate support for the upcoming election cycle, the ruling African National Congress has passed bills that set quotas for local ownership in the private security and mining industries. Ongoing labour disputes in the country's key mining industry have also adversely impacted economic growth. Poor economic growth affects the sector as it dampens both property fundamentals and capital markets, putting downwards pressure upon tenant retentions, rental growth, yields, development activity, financing and asset values.

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Demand remains high for spaces in Cape Town and Durban - South Africa's port cities. However, developers are failing to meet this demand because of the lack of available land space in these areas. In Cape Town's office sector, the vacancy rate is at its lowest due to high demand. Rental rate for smaller units are expected to increase marginally as the market is falling short on these sizes. In Durban, rental rates are rising across all sectors: office, retail and industrial due to inflation and the current supply not being able to meet increasing demand. Like Cape Town, smaller units are also more in demand than larger units in Durban. Durban is known to be a more stable market for industrial properties.

Though the construction industry continues to face stagnant growth after the 2010 World Cup, several large development constructions are currently in progress. South Africa's new Mzimvubu Water Project which constructs the Ntabelanga and Laleni dams in the Eastern Cape Province is anticipated to bring 6700 jobs during the construction phase and 6,500 jobs during the operational phase. In Johannesburg, approximately 250,000 square metres will be added to the office real estate spaces by upcoming projects in the Rosebank and Sanction area. In the retail sector, two new development projects are also expected to begin: Six Park and Springs. Unlike the real estate markets in Cape Town and Durban, the market in Johannesburg is believed to be over supplied.

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