The recently reported third quarter decline in business confidence in the manufacturing sector is not showing itself in the demand for industrial property which is outstripping supply. According to Alliance Group Chief Executive “we are seeing particularly strong interest in industrial property which is a sector that has been gearing for growth. Values across the country have been growing steeply. This is a market which comes off a low historical base and we believe that it still has legs".
Alliance Group subsidiary Auction Alliance has been seeing huge buyer demand and strong prices obtained for improved industrial buildings as well as vacant industrial stands. Export manufacturers are now being buoyed by a gradually weakening Rand and strong local manufacturing demand has put upward pressure on industrial rentals. The strong driver of industrial rentals has been building costs and across South Africa we continue to see the industrial property market as the strongest growth area in the commercial market. The newer industrial nodes such as Longmeadow in Johannesburg, Montague Gardens in Cape Town and Springfield Park in Durban have been attracting particularly strong buyer interest from both private and institutional buyers. “We recently sold a building in Longmeadow for R23million and another one in Montague Gardens for R18, 7million and there was a bidding frenzy for these properties which we have never experienced before".
Increased industrial rentals in the more established industrial nodes have also put upward pressure on prices and were substantially up on the same period a year earlier. What is most interesting is that industrial areas that have been neglected for years have suddenly sprung to life and due to high building costs buyers are now seeing good value. A 1000 square meter industrial facility was sold in September in Cleveland for R4, 5million, with great public interest. Two years ago it was impossible to give a vacant building away in Cleveland and other areas that were seen as marginal and neglected. Johannesburg properties in Wynberg, Prolecon, Jeppe and Alrode have all been snapped up by buyers who see the value in these areas which have been in the doldrums for so long.
In Port Elizabeth, which in the 1990's was seen as an industrial quagmire, there has been an up tick with overall price performance which has been inspiring for the Eastern Cape. “A building was recently sold by our PE branch in the Neave Township for R12, 1million which represented a net yield of 8, 25%. The Eastern Cape is having its best run in industrial property sales ever”.
The strong demand in all of the major industrial regions has been strong, except for Durban which has seen a sideways trend in the last quarter. “That being said, Kwa-zulu Natal has emerged off a particularly strong base with great price and rental growth in 2004 and 2005.
Nominal vacant industrial stand values continued to grow sharply northwards with values increasing in all major industrial areas. “Several years ago we didn’t even bother to submit vacant industrial land to our auction catalogues because demand was so dismal. This has been the one sector of the South African property market that has seen the biggest turnaround in the last two years.” explains Levitt. A sale of land in Isando notched up a price of R300 a square meter and Elsie’s River has been attracting prices of R600 a square meter for vacant serviced land.
Since 2003 there has been exponential increase in industrial stand values and surprisingly this continues to grow despite recent interest rates increases. The reasons for such strong activity in the vacant land market are related to currently low vacancies and the fact that economic fundamentals are in place for continued growth in the manufacturing sector.
According to a recent survey released by the Bureau for Economic Research, the manufacturing sector which is the economy’s second largest is expected to be one of the sectors leading economic growth in coming quarters, driven by a weaker rand and marginally higher interest rates. " Fixed investment in this sector is still rising sharply which is fuelling rentals, pricing yields and buyer demand and this is being played out at sales throughout the country. It’s truly a golden period for the industrial property market", explains Levitt. “We only wish that we could bring more industrial properties to the market”.
