Higher rental rates for large factories

06-12-2007

An interesting anomaly is beginning to occur across a number of South Africa’s more popular industrial townships: larger industrial buildings are commanding higher rental rates per m² than their smaller counterparts.

Commenting on results tabled in the third quarter of Rode’s Report for 2007, John Lottering of property consultants Rode & Associates notes: “Robust growth in building costs and land values, coupled with low vacancy rates and ravenous demand, continue to push industrial rentals upwards.

The trend was first noted by Rode & Associates among a number of industrial townships in the Durban area. Explains Lottering: “Upon further investigation, we discovered that a booming economy has resulted in growing demand for larger stands and buildings among expanding corporates. However, because the new supply coming on stream mainly takes the form of small premises, there is now insufficient stock available for the larger players.”

Adds property economist Erwin Rode: “The growing demand for larger premises is a normal phenomenon during an upswing in the property cycle – which in turn normally coincides with an upswing in the business cycle, just as South Africa is now experiencing. This can also currently be seen in the office market, where a number of premises are being built for large corporates.”

Industrial rentals countrywide were putting in a strong performance particularly relative to building costs, following a weak real performance during the past decade. Comparing industrial rentals across the country, the current Rode’s Report (2007:4) notes a number of the major industrial nodes to be significantly up on the same period a year earlier, including Port Elizabeth (25%); Durban (18%); the Cape Peninsula (21%) and the Central Witwatersrand (28%).