And industrial property is strongest commercial type
The eThekwini metro is the shining star of the country’s industrial property sector with Durban, particularly, outperforming other cities. As a whole, the industrial property sector is the strongest of all commercial property types in the country, and there appears to be a broader “relative coastal ‘strength’ picture”, FNB’s Property Insights Report shows.
The report is based on the Q2 2019 FNB Property Broker Survey. The Gauteng metro regions, especially greater Joburg, is the area 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.” In terms of time spent on the market, the industrial market also outperforms its retail and office counterparts with 21.2 weeks the average time for occupied industrial properties – compared to 22.77 weeks and 23.02 weeks for retail and office space respectively, 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 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.”
Breaking this down by metro, the report shows the “weeks on the market” averages to be:
● Cape Town: 12.8 (occupied)
● 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.”
Although industrial property is outperforming retail and office, Loos says none of the three markets are “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 them to be:
● 39.53% Financial pressure, looking for more affordable solution.
● 31.2% Looking for/attracted to better access to transport.
● 31.05% Moving closer to their market.
● 21.14% Looking for bigger/better premises.
● 9.3% Looking for/attracted to more reliable utilities (for example, electricity).
● 5.85% Safety and security/less crime.
● 3.45% Reinvesting or consolidating portfolio. (Percentages can exceed 100 as there is often more than one reason for selling.)
The South African Property Owner Association’s (Sapoa) Industrial Vacancy Report also shows vacancies in the sector have declined on a year-over-year basis.
“Encouragingly, and in contrast to the retail and office sectors, the industrial sector’s vacancy rate is down from 5.2% in 2016 (to 3.6% as at the end of December 2018).” However, 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 a period of time to filter through to pricing, the report says. “This suggests that rental growth may improve in the short to medium-term given the low vacancy rate of the past two years.”
A net income growth of 3.9% (year-onyear) was recorded for the industrial sector in 2018 as costs grew at a faster rate than gross income. The Sapoa report says the country’s “steadily growing manufacturing production” has underpinned the industrial property sector’s low vacancy rate, with manufacturing production getting back up to 2008 levels (on an index basis) during December 2018.