Although rentals for quality industrial property in greater Cape Town are rising, they are lagging feasibility levels for new developments, says Orin Varney, Western Cape leasing manager of Old Mutual Properties.

"There is still a scarcity of decent workable industrial stock which continues to encourage development opportunities," he says. "Rentals in prime areas have shown growth of more than 20% in the last year, and smaller properties in popular nodes such as Montague Gardens are fetching up to R40/m².

"The feasibility rentals for larger, new industrial developments are however still ahead of existing levels. These are being driven by sharp escalations in building costs. The gap between rentals and feasibility levels is expected to narrow in 2006 as vacancies decline even further. "

Varney says rentals for commercial property are set to start rising sharply in the future.

"The expectation is that increases will lag those experienced in the industrial market, but a similar pattern of growing scarcity of quality offices in key nodes and a narrowing gap between feasibility levels and market rates is likely."

He says that businesses are increasingly prepared to strike longer leases for appropriate premises ahead of a rise in rentals.

"Recent examples are a 10-year industrial lease for 6 989m² in Omupark, Epping 2, with a value of R22 million, a six-year office lease, valued at R16 million, for 4 000m² in Pleinpark, Cape Town, and five-year leases for commercial space of 900m² in Gardener Place, Pinelands, worth R3,5 million, and of 800m² in Tokai, worth R2,5 million. "

Old Mutual Properties' commercial and industrial leasing team in the Western Cape has concluded these and other leases for 38 000m², with a value of R92 million, in the 11 months to November.