Industrial Property Set to Top Residential's Leading Status

INDUSTRIAL property will be the star performer in the commercial property sector this year and next, says First National Bank property strategist John Loos.

Loos, who was speaking at the annual Top Property Conference in Melrose Arch last week, said industrial property would be the top performer in terms of total returns this year and next, while retail property's performance would "taper off".

Loos expects offices to lag behind retail and industrial property.

According to data provided by the Investment Property Databank SA, industrial property edged retail property in terms of total returns, recording a total return of 33,1% last year. Retail property's total return was 33%.

"Industrial (property) has substantially more room for yield compression with yields still above 10% as opposed to retail's 8,1% at 2005," says Loos.

He says manufacturing will be a strong driver of the industrial property market. But although manufacturing is important, overall economic growth is also important for industrial property performance because retail space users also need to have warehousing for their goods, Loos says.

"A lot of goods imported would be warehoused somewhere during distribution as would exported goods on their way out.

"A mildly weaker rand looks set to provide some further short-term support for manufacturing and economic growth."

Loos says annualised quarter-on-quarter economic growth was 4,2% in the first quarter of this year, up from the fourth quarter of last year's 3%.

A further factor driving industrial property has been a long-term declining trend in vacancy rates. Loos says this trend goes back to the beginning of the decade and is driving rents up sharply.

There is also a shortage of industrial space and huge demand.

Loos says although the 50-basis-point hike in rates last week was mildly negative, the effects would be felt more in the retail and residential markets. Industrial would be supported by rand weakness in the short term.

"Industrial property is more linked to economic growth than interest rates, whereas a lot of retail, especially durable consumer goods, are sensitive to interest-rate hikes."

Source: AllAfrica - www.allafrica.com

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