Cape Town Industrial Property Market showing signs of improvement

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Take up of commercial Industrial space and other emerging positive trends point to a better year for Cape Town Industrial Property Market. Take up of commercial Industrial space and other emerging positive trends point to a better year for Cape Town Industrial Property Market.

Take up of commercial Industrial space and other emerging positive trends point to a better year for Cape Town Industrial Property Market.

The SAPOA/IPD South African Biannual Property Indicator, released on 25 September 2013, showed that the Industrial sector’s impressive performance for the six months of the year was underpinned by high capital growth and low vacancy rates averaging 2.8% for the 6 months, which is 1.6% less than the 2012 annual average. This occupancy level compensated for relatively low base rental growth in this segment at R35.3/m2 versus R34.6/ m2 in the six months ending December 2012.

According to figures collated by Baker Street Properties, over the past 6 months some positive signs, albeit small, have finally been seen in the industrial property market in the Greater Cape Town area.

Andy Beddow, a director of Baker Street Properties said rentals are starting to tick up with gross rentals now averaging R35.00/m² (excl. VAT) from R32.00/m² (excl. VAT) early in 2013 for existing facilities.

The increase is driven by recent new developments, which now command rentals of more than R60.00/m² (excl. VAT) and the conversion of older redundant factories into more suitable distribution facilities.

“Based on the data, we have seen a decrease in the vacancies in the greater Cape Town area from 611,000 m² in March this year, to 566,000 m² in September. This is a decrease of more than 7%, which is encouraging and is the driver starting to nudge average gross rentals upwards,” said Beddow.

Other statistics revealed that 72% of current vacancies are reflected in facilities larger than 1,000 m², the bulk of which are in older nodes from Epping to the Bellville South area, traditionally in the larger industrial townships. Epping for example, has seen a large take up of vacant space as older buildings are being redeveloped into more suitable and versatile facilities. These re-developments are almost exclusively distribution centres (DC’s) with the exception of one or two manufacturing facilities, motivated by redundancy of existing space and a lack of available modern high volume facilities.

For modern DC’s your coverage of building to land is a maximum of 60% in order to cater for yard area to accommodate large commercial vehicles.  These older townships offer a lower land base price than the new townships and often prove more economical even including the demolition of existing buildings.

There is a looming increase predicted on vacant land price on the horizon (albeit nominal compared to the pre- 2008 peak), which we expect to play out during 2014. The popular development nodes being Airport City, Brackengate Business Park and Sheffield Park (bordering Lansdowne Road and the N7), which have virtually no land of significance left for sale.

No movement on annual escalations which seems to have settled on 8% for medium term leases, although purpose built developments attract more favourable escalations.

Furthermore, a continued lack of industrial buildings for sale particularly smaller units, which is probably a reflection on developers’ access to property finance these types of developments.

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Cape Town Property Market  |  SA Property Market  |  Industrial Property  |  Industrial Property Market  |  Baker Street Properties  |  SAPOA/IPD SA Property Biannual Indicator