Gauteng: can industrial property rentals keep rising?
2008-11-21 · Gauteng
Chronic shortage of stock but there are signs things could change for landlords.Erwin Rode, of Rode & Associates Property Consultants, has urged investors to exercise caution with industrial property particularly in the short term.
He said, in a report this week, the two pillars of industrial property, retail trade (which includes warehousing and distribution) and manufacturing and production are currently under severe economic threat.
"As we know, retail has already contracted significantly and this in turn could have a negative effect on manufacturing production," said Rode.
Recent research conducted by Rode & Associates indicates that industrial rental growth in certain paths of the country has started to moderate and this will have important implications for industrial land prices as these are leveraged by industrial rentals, said Rode.
"The calculation of the value of land is always a residual item and is therefore very sensitive to the variables that drive this value such as market rentals," said Rode.
He added that industrial property market is still healthy and the temporary situation of severe economic threat is caused by the slowdown in the business cycle rather than the overall slowdown in the property cycle.
Rode's comments follow news from others that the industrial market is looking good.
While the residential property market has been knocked hard, owners of industrial properties are cashing in on rentals as lack of stock means available space is expensive, is their message.
According to the Broll Property Market Report 2008/2009 in association with CB Richard Ellis on industrial rentals, Gauteng faces a chronic shortage of stock and suitable vacant land for new industrial development.
The report said, with little new space coming to the market, industrial rentals are expected to continue to rise with projections that this could continue beyond 2010.
In Gauteng, rentals have risen at an average of 15% annually over the past two years with an annual increase exceeding 25% in 2007.
Industrial properties mainly on the East Rand and in Midrand areas charge rentals of R40/m2.
East Rand has been a most popular node for many years particularly for warehousing, freight, distribution and courier companies due to its close proximity to OR Tambo International Airport and road networks.
Industrial properties in Germiston, Alrode, Wadeville, Selby and the industrial strip alongside the M2 highway have suitable space and infrastructure for current and future industrial usage in the greater Johannesburg area.
The M2 highway industrial strip can accommodate warehousing needs from 1 000m2 to 20 000m2 and appeals to small private businesses and large corporate organistaions.
Heinrich Smit, a property broker at RCP Brokers said industrial rentals in Gauteng differ depending on the location and a maximum of R50/m2 has been achieved in some properties.
He said preferred areas for industrial properties are Denver in Johannesburg south, Selby, City Deep, Midrand and Jet Park in the East Rand, and tenants include engineering companies, warehouses and manufacturing industries.
Meanwhile Bruce Fields, director of industrial properties at Bradford McCormack broking firm, said the industrial property market has seen strong growth in the past three years due to lack of suitable stock.
"There is demand for warehousing and distribution properties in the greater East Rand area and mainly on the freeway strip to Centurion in Pretoria," said Fields.
Linbro Business Park and Long Meadow command rentals in excess of R50/m2 because of the quality of the properties and added extras such as the business park environment.
He said looking ahead to 2009, there is still room for growth in the industrial property market as a result of stock shortage.
However, this growth could potentially be tampered by the effects of the current economic climate resulting in obvious reduction in economic growth over the medium term.
"Industrial rental growth is driven by lack of good industrial space as demand outstrips supply at the moment," said Fields.
Randburg had average rentals of R67/m2 according to the South African Property Owners Association (Sapoa) Industrial Vacancy Survey Q2 of 2008.
Niel Harmse a research analyst at Investment Property Databank (IPD) said rental growth in Randburg was driven by the upmarket car showrooms in Randburg CBD and surrounding area including Northcliff but excludes Strydom Park and Kya Sands. Randburg rentals have increased 11% from 10% in 2007.
He said, in a report this week, the two pillars of industrial property, retail trade (which includes warehousing and distribution) and manufacturing and production are currently under severe economic threat.
"As we know, retail has already contracted significantly and this in turn could have a negative effect on manufacturing production," said Rode.
Recent research conducted by Rode & Associates indicates that industrial rental growth in certain paths of the country has started to moderate and this will have important implications for industrial land prices as these are leveraged by industrial rentals, said Rode.
"The calculation of the value of land is always a residual item and is therefore very sensitive to the variables that drive this value such as market rentals," said Rode.
He added that industrial property market is still healthy and the temporary situation of severe economic threat is caused by the slowdown in the business cycle rather than the overall slowdown in the property cycle.
Rode's comments follow news from others that the industrial market is looking good.
While the residential property market has been knocked hard, owners of industrial properties are cashing in on rentals as lack of stock means available space is expensive, is their message.
According to the Broll Property Market Report 2008/2009 in association with CB Richard Ellis on industrial rentals, Gauteng faces a chronic shortage of stock and suitable vacant land for new industrial development.
The report said, with little new space coming to the market, industrial rentals are expected to continue to rise with projections that this could continue beyond 2010.
In Gauteng, rentals have risen at an average of 15% annually over the past two years with an annual increase exceeding 25% in 2007.
Industrial properties mainly on the East Rand and in Midrand areas charge rentals of R40/m2.
East Rand has been a most popular node for many years particularly for warehousing, freight, distribution and courier companies due to its close proximity to OR Tambo International Airport and road networks.
Industrial properties in Germiston, Alrode, Wadeville, Selby and the industrial strip alongside the M2 highway have suitable space and infrastructure for current and future industrial usage in the greater Johannesburg area.
The M2 highway industrial strip can accommodate warehousing needs from 1 000m2 to 20 000m2 and appeals to small private businesses and large corporate organistaions.
Heinrich Smit, a property broker at RCP Brokers said industrial rentals in Gauteng differ depending on the location and a maximum of R50/m2 has been achieved in some properties.
He said preferred areas for industrial properties are Denver in Johannesburg south, Selby, City Deep, Midrand and Jet Park in the East Rand, and tenants include engineering companies, warehouses and manufacturing industries.
Meanwhile Bruce Fields, director of industrial properties at Bradford McCormack broking firm, said the industrial property market has seen strong growth in the past three years due to lack of suitable stock.
"There is demand for warehousing and distribution properties in the greater East Rand area and mainly on the freeway strip to Centurion in Pretoria," said Fields.
Linbro Business Park and Long Meadow command rentals in excess of R50/m2 because of the quality of the properties and added extras such as the business park environment.
He said looking ahead to 2009, there is still room for growth in the industrial property market as a result of stock shortage.
However, this growth could potentially be tampered by the effects of the current economic climate resulting in obvious reduction in economic growth over the medium term.
"Industrial rental growth is driven by lack of good industrial space as demand outstrips supply at the moment," said Fields.
Randburg had average rentals of R67/m2 according to the South African Property Owners Association (Sapoa) Industrial Vacancy Survey Q2 of 2008.
Niel Harmse a research analyst at Investment Property Databank (IPD) said rental growth in Randburg was driven by the upmarket car showrooms in Randburg CBD and surrounding area including Northcliff but excludes Strydom Park and Kya Sands. Randburg rentals have increased 11% from 10% in 2007.
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