Industrial property letting deals in Johannesburg and Durban are reportedly still buoyant despite the tough conditions in the commercial market.
Johannesburg Stock Exchange listed property company, Emira Property Fund says it has managed to let around 11 500 square metres of industrial space in three separate letting deals in industrial parks in Johannesburg and Durban.
Johannesburg Stock Exchange listed property company, Emira Property Fund says it has managed to let around 11 500 square metres of industrial space in three separate letting deals in industrial parks in Johannesburg and Durban.
These include a 3 472 square metre warehouse at 1 Medical Road in Randjiespark, Midrand let to multi-national pharmaceutical company Johnson & Johnson on a five-year lease with beneficial occupation from the 1 October.
The others are a 3 804 square metre industrial facility located at 96 Loper Avenue, Spartan let to a blue-chip, international engineering firm Bateman Projects for five years with effect from June 1 and a 4 200 square metre warehouse in Inanda Road, Durban let to a local logistics operation on a three-year lease.
Average rental on these deals were R35 per square metreand the average lease term was just over four years.
Emira Property Fund’s chief executive officer James Templeton says they are seeing huge demand for industrial space in all the regions where they have industrial property.
Emira has a large concentration and focus on industrial space in Johannesburg and Durban and these two locations are in demand with a lot of activity taking place.
“Rentals are significantly cheaper in industrial space lettings compared to retail as structures themselves are a lot cheaper to build, requiring lower rentals to get decent returns,” says Templeton.
Asked what he thinks is strengthening the industrial property market currently, he says he believes there is a good balance of demand and supply.
This is because there hasn’t been as much industrial supply in recent years especially speculative industrial supply, which means that where tenants are looking for space, they have limited options.
He explains that vacancies in Emira’s industrial portfolios were at 10.9 percent in January this year and have since declined to 6.4 percent as of 30 September.
Templeton says Emira’s letting agents had to work hard to secure these recent industrial letting deals in an effort to offset rising vacancies in certain other premises.
“Although deals are happening, the letting market is tough at the moment.”
“There is some good interest from potential tenants in the space we have to let, but tenants seem to be taking a long time to commit, probably because of the uncertainty in the economy both globally and locally.’’
According to the South African Property Owners Association and the Investment Property Databank Industrial Vacancy Survey, the industrial property vacancies have declined moderately over the past one and a half years.
The report indicated that the South African industrial property vacancy rate improved to 4.2 percent from 5.4 percent in the first six months of 2010.
Templeton explains that vacancies in Emira’s industrial portfolios were at 10.9 percent in January this year and have since declined to 6.4 percent as of 30 September
KwaZulu-Natal has the lowest industrial vacancies at 1.3 percent followed by the Western Cape at 4.0 percent and Gauteng at 5.3 percent, according to the report.
Templeton says a total of in excess of 42 372 square metres of space across all property categories in the portfolio has been let by external leasing brokerages since December 2010.
This was when various broker and leasing incentives were put in place by the fund and a further 7 713 square metres is under negotiation excluding leases concluded by the fund’s property management service providers.
“Letting in all three property categories - office, retail and industrial is difficult with the industrial property market showing the strongest activity and the office market the weakest.”
The office sector has seen quite a lot of supply coming onto the market and together with reduced demand from tenants, this has impacted vacancies more severely in this sector than industrial and retail, he says.
He notes that in September 2010 Emira was given a mandate from Emira participatory interest holders to restructure the asset management fee payable to the management company by the fund in return for a lump sum, effectively internalising the asset management function.
One of the benefits of this development was that rather than focusing on profitability of the manager, the Fund was able to employ additional staff to, among other things, facilitate the leasing of its own properties via leasing brokers.
In addition to hiring additional staff, Emira restructured its letting strategy and introduced a range of broker and tenant incentives including reduced rentals to shift vacant space.
At the June year end, Emira reported vacancy levels across its property portfolio of 11.5 percent up from 9.2 percent in June 2010. – Denise Mhlanga
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