Industrial rentals still going nowhere
23-04-2012
For the time being, no improvement in the demand for industrial space is discernible, as vacancy rates continue to move sideways.
The weak demand for industrial space can be inferred from Rode’s national industrial-vacancy index. Since bottoming out in the final quarter of 2007, vacancies have ─ on the back of weaker economic activity ─ been climbing steadily. Although the acceleration moderated somewhat from 2010 onwards, vacancy rates have since then, at best, only been able to move sideways. In fact, if anything, there is a slight upward trend in vacancies, and this trend undoubtedly explains the mediocre performance of industrial rentals.
Apropos of this, the y axis of the first graph shows vacancies on a scale of 1-9, where 1-3 represents low vacancies, 4-6 medium en 7-9 high vacancies. Thus, the scale does not represent absolute vacancies. A “low” void on this scale (as is the situation at present) represents an absolute vacancy rate of less than 10%.
In the final quarter of 2011, industrial rentals in Pretoria performed the best of the major cities, showing a yearly growth of 8%. The picture was, however, more sober in the other conurbations, with nominal rental growth ranging between 2% and 3% for the Central Witwatersrand, the Cape Peninsula and Durban. In motor town Port Elizabeth, nominal rentals are going nowhere as they contracted by 1% year-on-year in the reporting and previous quarters.
Beleaguered owners of industrial property can draw some comfort from the most recent comeback performance of the manufacturing industry. The Kagiso Purchasing Managers’ Index (PMI) — a reliable indicator of the health of the manufacturing industry — started 2012 off on a positive note, with the Index moving into positive territory (a reading above 50) for the first three months of the year. In contrast, however, the Eurozone Manufacturing PMI has dropped below the neutral 50 mark in recent months. A likely consequence hereof is that weakness in manufacturing might act as a further drag on economic growth in the Eurozone. The ultimate possible outcome here could be weaker demand for manufactured goods from South Africa, as Europe is a major destination market for SA goods. The third graph shows the robust correlation between growth in Eurozone imports and growth in SA manufacturing output.
