Signs of revival in stagnant industrial market.

Posted On Monday, 27 January 2003 10:01 Published by
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After two to three years of stagnation, the industrial property market in Cape Town is showing definite signs of revival.

AFTER two to three years of stagnation, the industrial property market in Cape Town is showing definite signs of revival, says Colin Murray, a director of Baker Street Properties (formerly Lyons Property Company).

'Industrial rentals and prices have moved sideways for the past two years widening the gap between current market rentals and replacement cost rentals,' he said.

'Rentals on existing properties are averaging between R15/m2 and R18/m2 whereas a new building would be in the region of R24/m2 plus. We could currently be in a position similar to that in 1994 when industrial rentals were averaging in the region of R6/m2. By 2000 these rentals had increased to R16/m2.

'With prospects for the South African economy looking favourable, the gap could close fairly quickly. This prospect has not gone unnoticed by the investment community as demand for industrial property with existing leases in place has steadily increased over the past year.

Demand has also resulted from the demise of equity markets and the belief that property is a safe haven in troubled times. 'The position has already been reached where demand exceeds supply.

Industrial property investments generally sell on yields of between 13% and 16% depending on a number of factors, which include the age and location of the property, strength of the tenant and length of the lease.

Interest rates also play a large part and we believe these yields are likely to reduce, resulting in higher prices once the high rates begin to drop.' Baker Street Properties has recently concluded various industrial sales in Epping, Killarney Gardens, Claremont and Salt River totalling more than R30 million. Included in these sales was a factory complex in Goodwood that was sold forR5.35m.

'When one considers that the price obtained was equivalent to an average house sold in Camps Bay during the past year, we believe that industrial property prices must rise.'

Publisher: Weekend Argus
Source: Weekend Argus

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