THE industrial property market nationwide looks set to start picking up momentum.
Johannesburg-based property economist Francois Viruly believes that the sector, which has been in decline since about 1996, is "shifting back into equilibrium" and that it will be targeted by investors and developers over the next few years.
"The office property market is oversupplied, especially in Johannesburg, because falling interest rates in 1998 made it easier to finance developments," Viruly says. "The retail sector pretty much remains in equilibrium, maybe with a slight oversupply of neighbourhood shopping centres."
Meanwhile, many industrial properties have become "functionally obsolete", particularly in Johannesburg's southern nodes. Traditional factories in these areas do not reflect the needs of the "modern user ", so industrialists have been forced to look for "clean" industrial warehousing for light industry and distribution centres.
"Much of what you see in Midrand and Springs is clean' industrial warehousing," Viruly says.
The manufacturing sector has also restructured to become more efficient over the past two to three years.
"That has created the springboard for growth in the area," Viruly says. The prospects of the industrial property market are "more positive" than they have been for years.
Even though the strengthening rand is a worry for exporters and manufacturers the main users of industrial space Viruly says they cannot "hide behind a weak rand" and will have to look at improving efficiency.
"In the longer term it may well push the industrial sector to look for space that will permit the introduction of higher productivity levels," he says.
Stan Garrun, MD of Investment Property Databank of SA, agrees that there will be opportunities for growth in the sector.
The most recent databank returns show a slight improvement in the overall returns on industrial buildings, as well as improvements in the vacancy rate.
The income return for the past financial year was 12,2%, compared to 10,2% for the office sector and 9,2% for the retail property market.
Mark van Vuuren, divisional director of Marriot Property Services in Johannesburg, says many industrial tenants have been paying rentals that outstripped the growth in the market levels.
"When it came to renewing leases, we had to go back to market levels, so we've taken the knock," he says.
However, Van Vuuren is upbeat about the sector, saying there are "good growth prospects nationwide", with vacancy rates low.
Roger Perkin, MD of Martprop Property Fund in Durban, says: "We've been seeing good rental growth."
Older areas such as Jacobs and Mobeni in the south of Durban are suffering.
"The old buildings are fairly obsolete and multilevelled, and modern industrialists don't want that," he says. However, in newer areas rentals have picked up "very well over the past 12 to 18 months".
In Durban there has been growth at Maydon Wharf and Springfield Park, while Jet Park and Linbro Industrial Park in Johannesburg have followed a similar trend.
Perkin says the situation in Cape Town is similar, with the prime areas for industrial development being Marconi Beam and Montague Gardens.
"In the prime areas vacancies are dropping," Perkin says. He says the reason the Johannesburg office property market became so oversupplied was that interest rates were low, and this encouraged developers to build without pre-letting the space.
Old Mutual Properties MD Ian Watt says that in contrast to the oversupply in the office sector, the "discipline of building to demand is at least apparent in the industrial sector".
"There is a limited supply, particularly of larger units, with bigger users looking for premises better equipped than what typically is on offer .
"This is leading to select developments, notably for ownerusers, and increasing opportunities for redevelopment in older, industrial areas."
Watts says that while newer nodes such as Midrand in Gauteng and Montague Gardens in Cape Town offer opportunities for development, there are interesting prospects in the more established areas.
May 14 2003 07:35:14:000AM Nick Wilson Business Day 1st Edition
Publisher: Business Day
Source: Nick Wilson
Industrial property marketprospects pick up nationally.
Posted On Thursday, 15 May 2003 02:00 Published by eProperty News
Observers believe changing needs of users will entice developers, investors into the sector.
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