THE industrial land market is expected to remain relatively static this year following a surge in the value of industrial property over the past three years.

Land values, particularly in Cape Town, appear to have peaked and the market can expect to see some levelling off in prices.

As far as Cape Town is concerned, Baker Street Properties says the industrial property market seems to have “sobered up” in the first quarter of this year after an “extremely buoyant” 2007.

Baker Street Properties director Andy Beddow says vacant industrial land sales peaked at R1750/m² (excluding VAT) for sites in “very popular industrial nodes” last year.

His company expects prices to level off at this ceiling and remain there for the most part of this year.

On average the rate for industrial sites varies between R1250/m² and R1400/m².

“Along with increased construction costs, any new industrial development on the drawing board is only feasible at a gross rental of plus R48/m² (excluding VAT). We quoted new development rentals 12 months ago at R40/m², which shows a 20% rise during this period,” says Beddow.

He says that over the past two years industrial land prices in Cape Town have probably tripled. “It’s reached the price level it should be at and the costs of new developments are so expensive now there is no room for further land price increases.”

Beddow says steel prices have gone up more than 60% since the beginning of the year and that this also affects industrial property developments as steel forms an important part of a development.

“The market has to adjust to the new prices. We’ll see existing stock being taken up this year until the market understands that developments have to be at these rental levels.”

Commercial and industrial property brokers Pace Property Group MD David Green believes industrial land prices are not able to exceed R1800/m² in the market at the moment as asking rentals are not viable in relation to land prices.

“We have seen that in KwaZulu-Natal top industrial land sales have been done at R1800/m² Gauteng lags this cycle with the higher-priced land coming in at about R1200/m², but with most transactions taking place at R750/m² and R950/m² in prime locations,” says Green.

He says the industrial land market is expected to remain static insofar as price increases are concerned.

But Green says overall the demand for industrial accommodation remains strong with many tenants finding they need to pay about R50/m² for newly developed industrial space.

Property economist Erwin Rode, of Rode & Associates, says it is reasonable to assume that if there is a “sobering up” in the Cape Peninsula, then a similar situation “would be evidenced in the rest of the country too”.

He says it is also difficult to “assess” how the electricity crisis would affect the property market. “In the medium term it’s going to put a ceiling on new (property) supply, which would be good for existing land prices.

“But on the other hand it is probably going to decelerate the country’s economy and thereby dampen demand for industrial space,” says Rode.

Source: Business Day