Why are PE rentals lower than rentals in the rest of the country?

09-05-2006

When looking at the history of industrial and office rentals in Port Elizabeth (PE) compared to the major cities in South Africa, it is evident that rental levels are far lower − so much so that they are below the levels that would make new developments viable, given the strong increase in building costs over the past few years.

Erwin Rode, editor-in-chief of Rode’s Report, says that in PE’s predominantly owner-occupied industrial property market, demand has never quite caught up with supply, and therefore at the margin prices still do not reflect replacement costs.

Rode points out that Cape Town’s industrial market was in a similar position with rentals lagging those of the other major cities up to the mid-1990s. However, in the long run, rentals are determined by building costs.

Rode predicts that as Port Elizabeth’s economy grows in prominence − especially if Coega takes off − the gap will narrow. What’s more, this might happen faster than some may believe, as anecdotal evidence from players active in this market, reveals that the area currently has a chronic shortage of industrial space.