Industrial market still looks promising

Rode
23.04.20 03:49 AM Comment(s)

Industrial market still looks promising

Industrial market still looks promising

10-05-2007

After being in hibernation for over two decades, the industrial property market is back with a bang. While nominal industrial stand values and rentals have failed to outperform building-cost inflation over the past 10 years, over the past five years they have picked up pace to surpass building-cost inflation.


In the last quarter of 2006, stand values in the Central Witwatersrand (+60%); Port Elizabeth (+49%); Cape Peninsula (+45%) and Durban (+34%) had grown at an exhilarating rate compared to a year earlier.



This is in stark contrast to the previous two odd decades. The secular downswing in which the industrial property market had been since the early 1980s was a result of a number of factors, the most prominent being:

  • Deteriorating workforce productivity (output relative to fast-rising wages from the 1980s onwards);
  • Low economic growth (due to, inter alia, sanctions, declining real commodity prices, high real interest rates to combat inflation from 1989 onwards, political instability); resulting in feeble domestic demand;
  • Reduction of trade tariffs in the 1990s;
  • Space-saving technological advances by industry;
  • Structural swing towards the services sector (worldwide);
  • Dwindling contribution of the mining industry, caused by a weakening hard-commodity cycle;
  • Latterly, the rise of cheap-labour economies like China and India.


The Rode team found that over the past year nominal industrial rentals also beat building-cost inflation, notching up a growth of 17% in the Central Witwatersrand, Durban (15%); the Cape Peninsula (32%) and Port Elizabeth (32%).


With industrial vacancies continuing on their long-term down path, which began in the late 1990s, demand for industrial space is continuing to fuel industrial rentals. In addition, building-cost inflation, which is the long-term driver of rentals and value, is racing ahead.


“We expect that industrial stand values and rentals will continue to climb sharply in the foreseeable future”, says Erwin Rode, CEO of property economists and valuers, Rode & Associates.

Rode