Industrial property funds are looking attractive, if the latest data from eProp’s Rental Property Barometer is to be believed.
According to the barometer, average gross asking rentals across the retail, office and industrial markets are all still growing strongly - at an annual rate of 5%, 6% and 10% respectively.
According to eProp this could well lead to a short term boost to actual achieved rentals.
Marc Schneider, eProp research director, believes “It has been difficult to say that office rentals are growing much above inflation recently, but this is set to change.”
There are a number of reasons for such an increase but one of the main one is the scarcity factor. Led by a significant increase in reversions (the renewal of existing lease contracts), and the fall in oversupply.
On the supply side, many projects are becoming increasingly unfeasible owing to increasing building costs and inflation.
“If you look at year to date basis to July, planning activity on the office side was around 300 000 square metres. This is up from the same period in 2004 when the figure sat at around 187 000, which represented the tail end of the recent oversupply that had depressed the market,” Schneider says.
The completion figures do not match these of course, Schneider warns, but maintains that if investors and developers get too eager too soon, the industry could once again face an over supply problem.
“My advice would be to wait slightly longer and make sure there is a definite need,” he says, “but people are anticipating the increase in rentals.”
The Western Cape seems to be the fastest growing office market, growing by 21% annually.
“It has had stable vacancy rates in premier areas, and so it is understandable to see the increase in asking rentals. It is also a demonstration of the current confidence levels.
The industrial market has also done well recently, particularly in Gauteng, where asking rentals grew by 34%, but Schneider says it is a much more stable market, as developers tend to devlop such properties only when there is a need.
“Given the current conditions there is no doubt that the industrial and office rentals are set to grow,” Schneider says.
