WHILE the office property market is still battling in certain areas, the industrial market is achieving major rental increases.

According to Rode’s Report on the South African Property Market, compiled by property economists Rode & Associates, low vacancies and an almost 4% growth in manufacturing volumes since the last quarter of 2003 resulted in robust growth in industrial rental and stand values last year.

"Real industrial rentals are still growing at a rate that beats building-cost inflation," says Erwin Rode, property economist at Rode & Associates.

Rode says that the strong manufacturing growth took place in spite of the strong rand, as it was driven by domestic demand caused by low interest rates and rising asset prices.

He says strong consumer demand resulted in booming retail sales and caused increases in the rentals of warehousing space.

Rode expects industrial rentals to post further robust growth this year because of the positive outlook for the economy.

Rentals on the West Rand grew almost 30%, while in the central Witwatersrand area they rose 16,6%. Rentals increased nearly 20% in Durban and 14,4% in Port Elizabeth. The report says the Cape Peninsula recorded a nominal growth rate of almost 11% last year.

Rode’s report indicates the office market was still battling in places, with Johannesburg’s central business district (CBD) growing at 3,8%. While Pretoria and Durban’s CBDs showed growth of 12,1% and 9,9% respectively, building-cost inflation outpaced them with a 13% rise over the same period. Only the Cape Town CBD showed positive real rental growth of 13,9%.

David Green, MD of commercial and industrial property brokers Pace Property Group, says that in some cases rentals for prime industrial properties have escalated between 50% and 90%.

While the retail sector has done "very well", the market has not seen the "dramatic rental escalations" of the industrial property sector. He says industrial and retail properties are the sectors people should invest in.

But industrial properties can be a more attractive investment. Green says industrial properties are cheaper to build and maintenance costs are not comparable with retail centres because retail properties need to be completely refurbished every five to 10 years.

"The capital expense of these refurbishments is significant, particularly where the centres are competing with newer centres."

Green says industrial properties have longer leases, which are affected far less from a capital expenditure point of view.

"For investors wanting to invest in the property market, requiring a trouble-free investment, industrial property would be more desirable," he says.