Select Page

Executive rentals: good returns?

Mar 28, 2017 | Property Investment

It can be a great investment when luxury properties are rented by foreign multinationals. But there are pros and cons to servicing this niche market

The market for executive rentals can seem appealing to property investors, simply because the rental income is so high. When dealing with corporates, particularly multinationals, which will cover the cost of a senior-level employee, lease agreements can be over a longer period than usual so there is greater security — if you can get that tenant. Tamara Markman, Ennik Estates rental agent of the year, says the key driver of the Johannesburg rental market currently is the sustained demand from relocating foreign and local corporate tenants. They account for about 50% of active leases in the leafy suburb end of the rental market, she says.

“In spite of the prevailing economic conditions, we are still taking calls from [mainly foreign] corporates for rentals in the R120,000 [bracket] per month. In fact, our highest rental right now is at R150,000 per month,” she says. Multinationals, particularly in financial services, telecommunications, airlines and resources industries, are the most active, signing rental contracts for periods of up to five years. The popular corporate rental locations are good northern suburb areas that are close to top private schools, such as Westcliff, Sandhurst, Hyde Park, Morningside, River Club, Atholl, Inanda, Melrose and Saxonwold, Markman says.

No guarantees

But it is a risky business, especially in such a low growth economy. Corporate clients usually want these properties to be fully furnished. Not only does the furniture have to be new and modern to appeal to corporate clients, the property often has to have all the features and services that a hotel might offer, from Wi-Fi to cleaning and gardening services. Even with all those bells and whistles, however, there is no guarantee of finding a tenant. Blue Chip Accommodation owner Steven Leveton says the market is extremely competitive, especially with the likes of Airbnb and other companies that market properties at daily rates.

“Most body corporates do not allow daily rentals and you would need longer leases to satisfy body corporate regulations, and it’s not always easy to get longer leases so your apartment may stand empty for a few months, thus dropping the return considerably,” he says. “It’s not easy to get a decent return on a fully furnished property as there can be a high vacancy factor. However, if you are lucky enough to get a long-term lease it can provide a slightly better return than an unfurnished one as long as you are prepared to put up with all the hassle of fixing any electrical appliances,” he says.

“It’s not easy to get a decent return on a fully furnished property as there can be a high vacancy factor” 

Steven Leveton, owner, Blue Chip Accommodation

Saturated

Premier Classe Suites director Merle Chevreau says the Sandton market is particularly saturated. The company owns and manages high-end apartments. “Everyone and their dog are jumping on the [executive suites] bandwagon. I’m not sure where the developers and investors think the people are coming from. “I have had to reduce my rates so extensively it’s becoming a joke.” Marius Bezuidenhout, corporate rental agent at Etchells & Young Property Brokers, says developers are part of the problem because the economy has not kept up with the rapid development. It has resulted not only in corporate clients demanding lower prices, but also in owners having to accept lower rentals as the supply is too high, especially in Sandton where new developments are still being built.

Break even

A luxury Sandton apartment in a prime location, with the price for a two-bedroom, two-bathroom unit at about R4.5m, may not be a good investment. “Because, even if you furnish that apartment, the most you can ask for is R35,000 per month, or R38,000 if it’s a really nice place. So there is no way that you will get a return on investment immediately. There will be a R5,000-R7,000 shortfall on the bond repayment amount so you would be losing money. “A good return on investment is if you can break even on a property after five years,” says Bezuidenhout.

“A good return on investment is if you can break even on a property after five years”  – Marius Bezuidenhout, corporate rental agent, Etchells & Young Property Brokers

“If you can buy the property cash, however, it is a different story, because you can’t get that kind of interest if the money is sitting in your bank account, but how many people can buy property for cash these days?” Rosebank offers a better prospect because comparable furnished units in that area can go for almost half that amount, he says. Ideally, the best investments are those where the owner can charge R15,000-R18,000 for a fully furnished place, because those are the easiest properties to market, he says.

Basic necessities

These are the must-haves for corporate tenants, says Etchells & Young Property Brokers:

Appearance: Grounds and buildings must be safe, well maintained and tidy. Parking areas must be clearly designated, well-lit and tidy.

Security: Alarm system and burglar bars are a bare minimum. Corporate tenants like to have CCTV, electric fencing and armed response. You also need a complete list of security procedures and contact numbers, instruction manuals, panic buttons and codes.

Furnishings: There must be new, modern furniture — two sets of linen per bed, two sets of towels and two sets of bathroom mats for each bathroom, as well as two quality pillows for each sleeping position. All crockery and cutlery should be provided including appliances such as vacuum cleaners and irons.
Electronic appliances: There must be a flat screen TV (no box TVs) with all instruction manuals, DSTV with premium subscription and Wi-Fi.

Credits: Photos: Supplied, Text: Sungula Nkabinde

Pin It on Pinterest

Share This