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City shines in industrial property sector but is outdone by eThekwini

The industrial property sector is the strongest of all commercial property types in the country, and within this sector, the Cape Town metro is one of the shining stars.

In fact, FNB’s latest Property Insights Report – which is based on the Q2 2019 FNB Property Broker Survey – shows there is a broader “relative coastal ‘strength’ picture” when evaluating industrial property performance.

The eThekwini region though, outperforms its coastal counterparts of Cape Town and Nelson Mandela Bay.

The Gauteng metro regions, especially greater Joburg, are the areas of relative weakness with the latter experiencing the highest levels of owner-occupied property selling due to financial constraints, says the bank’s property economist John Loos.

“(Respondents) in the eThekwini Metro perceive the lowest level of such selling.” Regarding time spent on the market, the industrial market outperforms its retail and office counterparts with 21.2 weeks the average time for occupied industrial properties – compared to 22.77 weeks for retail and 23.02 weeks for office space – and 24.97 weeks for vacant industrial properties, Loos says.

Vacant offices are taking, on average, 29.08 weeks to sell, while vacant retail space is on the market for about 29.19 weeks.

“The shortening in the estimated average time on market for vacant industrial properties from the Q1 to Q2 survey was quite noticeable, declining from 30.27… whereas office average time increased from 25.08 weeks to 29.08 weeks and retail from 26.04 weeks to 29.19 weeks.”

The country’s growing manufacturing production has underpinned the industrial sector’s low vacancy rate. Picture: Emir Krasni

Breaking this down by metro, the report shows the “weeks on the market” averages to be:

  • Cape Town: 12.8 (occupied, 15.3 (vacant).
  • Nelson Mandela Bay: 12.8 (occupied), 16.4 (vacant)
  • eThekwini: 10.5 (occupied), 13.1 (vacant).

The industrial sector is also the strongest when it comes to supply and demand balance, Loos says. “The industrial market possesses the lowest percentage of respondents (26%) perceiving supply to exceed demand, whereas 48% perceive supply to exceed demand in retail property and a very high 53% in the case of the office property market.”

But while the industrial property is doing well, none of the three markets is “extremely strong”, with a “considerable” level of financial pressure-related sales among property owner-occupiers.

Estimating the main reasons for selling as a percentage of total selling, survey respondents indicated: 

  • 39.53% – cited financial pressure, looking for a more affordable solution
  • 31.2% – seeking better access to transport
  • 31.05% – moving closer to their market
  • 21.14% – looking for better premises
  • 9.3% – seeking more reliable utilities
  • 5.85% – safety and security. 
  • 3.45% – reinvesting or consolidating portfolio. (Percentages can exceed 100 as there is often more than one reason for selling.)

SAPOA’s Industrial Vacancy Report also shows vacancies in the sector have declined on a year-overyear basis. “Encouragingly, the industrial sector’s vacancy rate is down from 5.2% in 2016 (to 3.6% as at the end of December).” But despite the “slight improvement” in occupancy levels, base rental growth slowed to 4.6% during the year.

Historically, rental growth has lagged shifts in vacancy rate as excess supply or demand typically takes time to filter through to pricing, the report says.

“This suggests rental growth may improve in the short to medium term.” A net income growth of 3.9% (year-on-year) was recorded for the industrial sector last year as costs grew at a faster rate than gross income.

The report says “steadily growing manufacturing production” has underpinned the industrial property sector’s low vacancy rate. 

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