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Industrials can survive junk hump

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The South African industrial property market is headed for some tough times but experts believe it is strong enough to survive the impact of junk status ratings.

The South African industrial property market is headed for some tough times but experts believe it is strong enough to survive the impact of junk status ratings. Currently, it is the topperforming property sector in the country with a return of 13.6%, according to the latest IPD SA Annual Property Index. 

It even outperformed the retail property sector, which recorded returns at 12.6%. However, the warning comes from the latest State of the SA Property Market report by Rode & Associates, which states continuing under-performance of the manufacturing and retail sectors “does not bode well” for the industrial property market. 

It explains that the manufacturing sector underpins the demand for industrial space for manufacturing production purposes, and the retail sector underpins the demand for warehouse space. 

“Nonetheless, in the fourth quarter of 2016, industrial market rentals in the country’s major industrial regions still showed fairly good growth. The best was in Durban (+7%). The Cape Peninsula, the Central Witwatersrand and the East Rand all showed growth of about 6%,” the report said. 

In Cape Town, the industrial property markets in the areas of Strand, Somerset West, and Gordon’s Bay have been “really busy” in the past year, says Louis van Rooyen, commercial broker at Rawson Helderberg. 

There are also many people migrating from areas such as Gauteng and Mpumalanga, and relocating their businesses to the Western Cape because of perceived better local government service delivery and an improved lifestyle. 

Currently smaller businesses, including small manufacturing companies and small printing press businesses or mechanical workshops, are experiencing the most success, Van Rooyen says. Yet, despite the overall growth, he says there has been a slowdown in the past month or two, because of the country’s current economic state. 

“People are nervous to commit for now. I feel as though they are waiting to see if our political situation will improve before they can make informed decisions.” 

In the northern parts of Cape Town, there is also this sense of struggling growth, explains Gary Price from Diamond Properties North. The industrial sector, although not experiencing a “boom period”, has picked up, despite the economy. 

He says the market is seeing many companies downscaling their businesses because of the economy, the rising costs of labour, and the continued strikes, all of which will “only diminish productivity”. 

Where industrial developments are succeeding, though, is in their prices as these have “remained firm” for rental and sales, because of the dwindling number of developments over the years. 

Price says he believes there is more growth in the development of larger warehouses than small ones, mainly because of national companies taking up these warehouse spaces at high rental rates. 

He adds, “The industrial market is still strong enough to survive but the looming junk status rating will certainly have an impact – yet not as big as people might be led to believe.” 

With this in mind, Price says property agents should make sure they have stock to sell or let because, with diminished development, there’ll eventually be a shortage of stock, and so agents who do have stock will benefit financially.


Cape Times Property

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