Industrial property rentals growth 'gaining pace'

THE growth in local industrial property rentals is slowly accelerating, probably due to the lagged effect of declining vacancy rates, according to Rode & Associates property valuer and economist Erwin Rode.

“Such has been the acceleration in the growth of market rentals in this sector that in the fourth quarter of 2012, prime rentals recorded a nationally averaged growth rate of 7%, with the strongest yearly growth of 9% being achieved in the Cape Peninsula,” Mr Rode said.

But while the latest Rode’s Report on the South African Property Market had good news for the industrial property market, the national average growth rate still failed to exceed building-cost inflation and “hence we are not yet out of the woods”, he said.

Industrial property returns were not as high as retail property last year, but did outperform the struggling office sector, according to the South African Property Owners Association-Investment Property Databank SA Annual Property Index.

Retail assets have been a major focus of the commercial property sector, but some groups have increased their focus on the industrial sector.

JSE-listed Capital Property Fund shifted its focus last year to undertaking new developments, particularly of quality industrial properties. The fund acquired Clairwood Racecourse in the final quarter of last year for R430m from Golden Circle. It intends to convert the 77ha property into a warehousing and logistics park.

Capital executive director Andrew Teixeira said in January that the fund had a large focus on A-grade warehousing and logistics properties primarily in Johannesburg, Durban and Cape Town.

Last year, the Liberty Group announced the purchase of its first greenfields industrial property, near Richards Bay. Liberty is developing the property into an industrial and commercial mixed use development, given the significant infrastructure investment expected in the area.

In line with the views of other analysts, Mr Rode said the news was bleaker for office rentals, which were still lethargic due to generally weak demand.

“Market rentals in Cape Town and Pretoria decentralised barely mustered yearly growth of 3%. Johannesburg decentralised only managed a measly 1%, while Durban decentralised actually saw rentals contract by 4%.”

Mr Rode said it was a relief to commercial property owners — frustrated in recent years by rising vacancy rates, poorly performing market rentals and explosive operating costs — that capitalisation rates had held their own.

Capitalisation rates are the property equivalent of the forward earnings yield of equity. When capitalisation rates rise, market values tend to drop, and vice versa.

The report shows that capitalisation rates on larger shopping centres dropped on the back of a general decline in global interest rates, stock and bond yields — resulting in notable growth in the market values of large shopping centres during last year.