Sector was faring better than others but it is weakening
The country’s industrial market might have been the strongest commercial property sector of late, but that does not mean it is not without its struggles.
It also might not always shine so brightly, says FNB property economist John Loos.
While there might be some accuracy in some people’s belief the industrial and warehouse property class is the future “winner”, set to outperform other commercial property types, particularly where specialised warehousing is concerned, Loos says the sector has been weakening.
It also has both economic and technological challenges, although all major property sectors have the same challenges to which they must adapt.
In Durban specifically, the market is not performing well and property prices are slipping, says the Vizak Group’s Prakash Naidu, explaining that the industrial sector is predominantly manufacturing, so any downturn in the economy affects demand for manufactured goods first.
“It is also a capital and labour intensive sector, with heavy machinery, high utilities costs and high semi-skilled labour costs, and in many instances is at the mercy of bargaining councils and industrial strike action. All these factors affect the industrial property market, adversely,” says Naidu.
There has been a “definite slowdown” in industrial property enquiries over the past 12 months, says Tristan Rasmussen of Rasmussen Industrial Properties.
“Currently, I would say the market is stagnant with a reduced number of sales and leases being concluded.” Other challenges for the sector include high municipal costs, a factor which is counterproductive, considering the industry is where long-term stable jobs are meant to be created, says Naidu, who owns a complex of mini factories in New Germany.
“Essentially, money that should be used to grow the sector and create jobs is siphoned by some municipalities which, as we suspect, are mismanaging the funds.” He says the high rate of business crime is also detrimental to the operating of industrial property, particularly because scrapyards have mushroomed in industrial nodes all over the country.
“Some suppliers to the scrapyards are petty criminals who devastate the infrastructure in industrial areas. “I have spent more than R200000 in repairs and replacement of water pipes and other infrastructure due to theft.”
Like the retail and office property markets, Rasmussen says the industrial sector is “under stress” in current market conditions. “There is pressure globally with exports and imports decreasing. Look at the huge yards in and around the Durban port area storing empty containers.”
In general, he says the common thread in the challenges appears to be uncertainty in the South African political arena, corruption, the lack of accountability to date and uncertainty over land redistribution and security. For these reasons, Rasmussen does not predict improvement in the industrial property sector in the short term and expects a “very tough trading environment in 2020”.
Naidu agrees: “2019 is a done deal. There is no sign of improvement in the industrial sector and, until consumers have income to spend at the tills, the industrial sector will remain under pressure.
“Areas such as New Germany, Westmead, and Brackenhill have high vacancy rates at the moment. It takes expansion of existing businesses or new businesses to fill properties. At current growth levels this is not happening.”
Tony Bales of Epping Property is also expecting a tough rest of 2019 and 2020, and says the extent of the pain in the industrial sector is “deep”. However, he says one must look for the green shoots – the businesses that are starting to blossom, the locations that are favoured and the type of buildings these businesses prefer.
“More millionaires were made from the Great Depression in the 1930s than any other time in history. Yes, times are tough, but with challenge comes change and opportunity. The industrial property sector has changed a lot in South Africa over the past 10 years and will change even more in the next 10,” Bales says.