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Good predictions for industrials

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The Western Cape market is expected to continue its top performance

The WESTERN Cape’s industrial property market is predicted to gain momentum this year, with the amount of vacant space dropping and rental rates increasing.

Over the past year, this market has been the best performer nationally, and with increased business confidence and gross domestic product (GDP) growth, this trend is expected to continue, says GDP Industrial Property’s Guy de la Porte.

“The Western Cape has relatively low vacancy rates across the market and I expect the market to gain momentum in line with increased business confidence and GDP growth. There are very few speculative developments coming out of the ground  so I believe increased demand will absorb the small amount of vacant space and cause rentals to increase.”

Industrials in pole positions

According to Cape Industrial Property’s Joshua van Zyl, the three main industrial centres of Cape Town – central, west coast and northern suburbs – have shown similar market conditions in recent months, with low vacancy rates, increasing rentals and firm yields.

Fierce competition for investment property across all industrial nodes drives the compression of yields, says Van Zyl.

“Institutional investors are continuing to expand ownership of industrial assets in Cape Town, especially through development on land acquisition. Property funds such as Redefine, Atterbury, Abland and Growthpoint have been actively pursuing industrial opportunities,” he says.

The three-year lease for units 2 and 3 Ikhwezi Industrial Park in Epping amounted to total rental of about R13 million. Picture: GDP Industrial

“Land sales were driven by the low vacancy factor in established industrial nodes and the desire for high quality assets by the institutions.”

Investment activity is expected to continue into the first half of this year, with supply chain efficiencies driving demand for new builds with larger cubic capacity and operational functionality, Van Zyl says, adding that inflation and urban regeneration will continue to drive land value growth rates and rental rates. Over the next six months there will also be speculative buildings going up in the new industrial nodes, he says.

“The strong rand will (also) put pressure on manufacturers and exports, and low GDP growth and weak retail turnover will be detrimental for a large percentage of tenants.”

Industrials can survive junk hump

He says imports will remain strong, coupled with warehousing and distribution, while high levels of transport infrastructure development will benefit supporting industries.

Wholesale will remain critical as they service growing informal trade sectors.

De la Porte says areas such as Brackengate along the R300 are in high demand due to their position for logistics companies to easily access the N1 and N2 and service the northern and southern suburbs. Demand is also highest for warehousing and logistics buildings, which he believes is being driven by growth in online sales.

“The airport industrial areas are also in demand. Paarden Eiland and Salt River/Woodstock are in high demand from owner-occupiers, investors and developers due to anticipated future commercial and residential conversion potential.”

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