Industrial property rentals in Cape Town remain under pressure

The market for industrial property rentals will remain challenging in the foreseeable future as long as the manufacturing sector remains under pressure. Most industrial property owners will be hard pressed to achieve rentals that will beat the inflation rate.

In short, industrial property rentals will be the same or lower than last year.

Rental rates for industrial property in Cape Town in particular are under pressure, and showed a mere 0,2% growth in the last quarter of 2013 compared to the same period last year. This is particularly worrisome as it suggests a fall in rental rates once inflation is taken into account.

This is lower than the 9,1% reported in Durban and 5,2% in the East Rand, according to the latest Rode’s Report on the SA Property Market. Nationally, rentals for prime industrial properties grew in nominal terms by 4,2%.

Although Cape Town has never sold itself as a hub for industrial property activity, this poor performance in industrial rentals is reason for concern.

Industrial property rental rates are clearly impacted by low economic growth and economic forces that are not determined by the individual property owner or the manufacturer, but rather by national policy and international economic trends. All the same, most economists are predicting an average economic growth rate for 2014 of around 2%.

In a recent report Neil Gopal, SAPOA’s CEO said that local authorities will in future play an important role in creating an investment environment that will attract business and industrial development.

Local authorities will increasingly have to look at incentives to attract industrial development. Factors that would make investment in industrial property attractive would include efficiently managed local authorities, competitively priced utilities such as electricity, rates and taxes, and service delivery.

Having said all this; Industrial Property vacancies in popular Cape Town nodes with attractive, well managed, easy to use space and a decent enough yard area remain low and are difficult to come by or just too expensive for your average user.