Nick Wilson

THE supply of new industrial property stock in Gauteng is expected to dry up within 18 months because of the electricity supply crisis.

And one development, construction and property marketing company believes this could send industrial property rentals soaring 30%-50%.

John Whall, a director of Montagu Property Group, says that “in 18 months’ time there will be no new industrial property supply” coming on stream to relieve the shortfall because industrial zoned land with electricity supply has become a rare commodity.

Whall says vacancies are still particularly low at less than 4% across Gauteng.

Although there is still land to be developed, this will come to an end in the short term.

Hundreds of potential industrial sites in Gauteng without power are for sale.

But there are no buyers because “if you don’t have power you can’t get approvals from local authorities to do a development”, he says.

“Industrial rentals could consequently go up by as much as 30%-50% in the next 18-24 months because there is going to be no more supply. We cannot develop without services.”

And while this will benefit existing industrial property landlords in the short term, it will negatively affect both property owners and businesses in the long term.

Whall says it is a “big issue” because ultimately businesses wanting to expand will not be able to grow. High rentals could cause businesses to start defaulting on rent payments.

Even if economic growth slows to 3% this year, “we will still have a problem of limited supply” and there “will be more businesses looking for less space”, Whall says.

“It’s like a pipeline. All this development is coming out, but no new serviced land will be going into the pipeline.”

But First National Bank property strategist John Loos says the market may experience a “lull in demand” for industrial property space this year because the manufacturing sector may go through a period of contraction because of higher interest rates and a weak global economy.

Loos says this could “take some of the upward pressure off rental inflation”.

However, he says that over the next year “and the years after” the shortage of industrial space is going to drive “very strong rental inflation and returns on property”.

Property economist Erwin Rode of Rode & Associates says he would not be “as bullish” about the possibility of rentals increasing by between 30% and 50% in 18 months.

But Rode says that the electricity crisis is certainly dampening supply.

“And as long as the economy is growing at 3% a year, it does have the potential to push up rentals even further,” he says.

“Nobody can say if and when Eskom will lift the moratorium on electricity certificates for new developments. I can’t see how the electricity crisis is going to solve itself in the next five to seven years.

“So just based on this fact alone, one must be bullish on the prospects for industrial rentals.”

In March, Eskom announced there would be delays of four to six months in the issuing of quotations for electricity connections for new developments.

Source: Business Day