27 Oct 2011
The South African industrial property vacancy rate improved to 4.2 percent from 5.4 percent in the first six months of 2010.
According to the South African Property Owners Association (Sapoa) and the Investment Property Databank (IPD) Industrial Vacancy Survey, vacancies have declined moderately over the past one and a half years.
The report notes that despite good fundamentals, the industrial sector suffered a contraction in capital growth in the first six months of 2011, thus making it the worst performing of the three main commercial property sectors.
According to the report, the all industrial vacancy rate in South Africa improved to 4.2 percent from 5.4 percent six months earlier (end 2010) and 5.7 percent 12 months prior (mid 2010).
Current industrial vacancy levels are below those of both the 3 and 10 year annualised average, but slightly above the 5 year average.
Writing in the report, IPD researchers Marc Schneider and Jess Cleland say following the brisk pace of economic expansion recorded in the first quarter of 2011, real growth in the South African economy slowed substantially in the second quarter to an annualised rate of only 1.3 percent.
They say real value added by the manufacturing sector contracted at an annualised rate of 7 percent in Q2 2011 from 14 percent in Q1 2011.
“For industrial property market fundamentals this will at best stem investment activity and is most likely to detract from performance going forward.”
Industrial planned supply for the first six months of 2011 was down 7.3 percent compared with the same period in 2010 and actual completed supply was down by 32 percent.
The report indicates that hi-tech industrial space continues to show the strongest occupation performance with a low vacancy of 1.5 percent a consistent trend over the past 16 years except between 2000 and 2002.
Schneider and Cleland say this segment is representative of newer and more modern facilities which comprise an office component and by implication in some areas this can compete with traditional office market demand.
With the exception of high-tech industrial property, the industrial sector suffered a contraction in capital growth of -1.5 percent, this despite industrials posting the strongest income return at 5.1 percent boosted by the lowest operating cost growth per square metre and the lowest vacancy.
Warehousing recorded the highest vacancy at 6 percent up 120 basis points from end 2010 (4.8 percent) and 80 basis points from mid 2010 (5.2 percent).
The close economic association between warehousing and retail this recent trend, and with the uncertainty surrounding the consumer retail cycle, investors will be somewhat cautious regarding any conclusive outlook for this segment, they say.
The report indicates that in terms of segment sizes, the biggest improvement in vacancy rate as measured over the past six months occurred in the 5 000 to 10 000 square metre segments where vacancies dropped from 7.5 percent to 3.8 percent.
The 2 500 to 5 000 square metre segments vacancies rose to 9.6 percent at the end of June 2011 from 6.1 percent at the end of 2010.
Larger sized industrial categories vacancies have been lowest, hence better total return performance.
In the Western Cape, the Central Industrial zone bound by the N1/N2/R300, vacancies are 3.8 percent and the N7 Corridor (North of N1) 4.7 percent.
In Gauteng, the R24/R21/N12 Triangle, vacancies are 4.9 percent, N3/N17 Junction 2.7 percent, N1/R101 Corridor 7.8 percent, M2 East/West Corridor 3.3 percent, N12 East of Jet Park 2.8 percent, M1 Corridor to Buccleuch 3.1 percent, R512 Corridor incorporating Strijdom Park 16.3 percent, Alberton/Alrode Basin bound by the R59 & N3 4.8 percent, South West Industrial – Main Reef Corridor including Ormonde 7.1 percent, R21 North of OR Tambo International Airport 10.6 percent, N3/R25/Allandale Triangle 4.2 percent and Greater Pretoria 2.7 percent.
Over the past 16 years, the highest industrial vacancy rate in KwaZulu-Natal occurred in 2000 when it reached 6.8 percent compared to 8.0 percent in the Western Cape (1999) and 14.3 percent in Gauteng (2001).
The researchers say one of the more notable characteristics of the industrial investment market is that over the average annualised periods, the highest differentiation in total return is only 3.7 percent between the segments (over three years) and the lowest differential 1.4 percent (over 10 years). – Denise Mhlanga
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