THE industrial property market, which has been in the doldrums for the past two years, has received a shot in the arm since the beginning of the year with renewed confidence boosting market activity.

Andy Beddow, director of Baker Street Properties, one of Cape Town's largest commercial, industrial and retail property broking organisations, says during the first two months of this year there has been a marked improvement in the general confidence levels of industrialists, many of whom are now implementing plans for projects previously put on hold due to the previous prevailing economic conditions.

"There have been substantial land sales in Montague Gardens and in the Cape Town International Airport industrial precinct for both the owner/occupiers and investors. Recently two sites, both measuring in excess of 20 000m2 have been sold at the airport.

In Montague Gardens/Marconi Beam, the Rainbow Park township has been sold out, with the neighbouring Omurumba Park almost fully sold," said Beddow. "There has been renewed interest in older more established industrial areas such as Epping.

The reasons for this are: the highly competitive rentals which are averaging R12.50 per m2 (VAT excluded); and the shortage of property with buildings over 2 000m2 currently available in the newer industrial nodes.

"If one considers that a yield of older industrial areas is around 15%, at rental levels of R10.00/m2 (net of operating costs), it offers a property value of R800/m2 for land and buildings. If the land cost is deducted, then it gives a physical building value of under R500/m2, assuming a 75% coverage of the site.

"This is three to four times less than the current development costs for industrial buildings.

Because of this and the limited property options available, the market will shortly begin to see these rental levels of R12 to R12.50/m2 rising to beyond the R15/m2 mark in the next 12 months."

Beddow said property was tightly held in traditionally popular locations such as Paarden Eiland and Ndabeni because of their proximity and access to major arterial roads, railway stations and Cape Town Harbour. In the event of larger industrial premises exceeding 2 000m2 becoming available in these areas, the property is readily leased or sold.

"The trend for annual escalations is still downwards, with the current average being 10% compared to 12% a couple of years ago.

We predict that there will be sub 10% escalations being signed on medium to long-term leases this year."