Nick Wilson

INDUSTRIAL property vacancies across SA are at a record low — about 4% — and could reach 2% in coming months, says Pace Property Group MD David Green.

The industrial property market, which has struggled for many years, has had a revival over the past two years and is expected to be a good performer this year.

Green says that according to Investment Property Databank (IPD) South African figures, industrial property vacancies for all quality types moved to about 4% last year, from a peak of about 12% to 13% in 2001.

In 2001 IPD figures included only good quality industrial property statistics and if older industrial properties had been included they would have reflected vacancies of about 16%, Green says.

"Industrial property currently represents one of the better sectors in the investment property market. Because of the low vacancies we will see tenants being induced to sign much longer leases to secure their tenancy, which is beneficial to the investor when coupled with higher rentals," says Green.

"Realistically, if this pattern of declining vacancies continues, in the next few months we could have a vacancy level as low as 2%," Green says.

This 2% vacancy factor will largely also incorporate industrial space which was "totally undesirable", such as old-style smoke stack buildings and factories that are unsuitable for modern use.

Green says that the cost of construction of industrial property has soared dramatically during the first half of this year as a result of the increase in building costs coupled with the increase in the cost of zoned industrial land.

He says A-grade industrial properties in areas such as Linbro Park and Longmeadow, both in Johannesburg, are fetching rentals close to R40/m² a month.

According to the recent JHI Real Estate South African Property Report 2005, industrial assets are not fully priced and there are opportunities available to enhance earnings.

JHI says that key drivers of the industrial property market, such as the manufacturing sector, remain dependant on the exchange rate. But while the export sector has taken some strain on the back of the rand strength during the past year, the market must not lose sight of the fact that the domestic economy has been strong and may boost imports, the group says.

"At the top end of the scale, GDP (gross domestic product), which correlates closely with industrial property demand, is improving and is expected to remain strong," says JHI.