Industrial property: rents, investment trends

Rentals expected to decline in 2009 - national rental stats, global picture.

The South African industrial property market faces an economic threat which could end the excellent run it has enjoyed over the past few years.

This is according to the Rode Report of the first quarter of 2009 which notes that the two pillars of the industrial property sector, namely retail trade ( which affects both warehousing and distribution) and manufacturing and production, have put severe strain on the market.

The report indicates that the only nominal rentals that exceeded the expected growth in building-construction inflation were those in Durban.

Port Elizabeth showed nominal rentals contracting by 1%, largely owing to the misfortunes of its motor-vehicle manufacturing industry.

John Lottering from Rode& Associates said both rental growth and building cost-inflation has come under pressure as a result of a waning economy.

Industrial property rental growth would improve when the positive impact of lower interest rates has filtered through to economic activity, he said.

The industrial property sector has for many years enjoyed robust rentals' growth with strong retail trade sales increasing the likelihood of an increase in demand for industrial space to be used for warehousing and distribution, he said.

Asked in which areas there has been a deceleration in market rentals, he said in most major industrial areas countrywide, including the
Central Witwatersrand, Durban, the Cape Peninsula and Port Elizabeth.

In the current economy, Lottering said single-digits can be expected for rental growth in the industrial property sector. Last year, they were growing at rates of between 10% and 20%.

According to the Rode Report, monthly gross rentals for industrial property in Central Witwatersrand is R34/m2 , Durban R39/m2, Cape

Peninsula R32/m2 and Port Elizabeth R23/m2 and these are for spaces measuring 1 000m2.

Juan Weber, property broker from Cosmoprop in Cape Town, said currently the area has few industrial vacancies compared to the past 12 to 18 months when big and small industrial space was scarce.

Rate cuts are not yet having an influence on rentals for the industrial property, said Weber.

In Cape Town, industrial space monthly gross rentals are in the region of between R25/m2 to R45/m2 with average rentals of R32/m2. He said landlords are willing to negotiate on these rates as there is a lot of stock from which to choose.