Positive signs emerging in Cape industrial property market

Positive signs emerging in Cape industrial property market

OVER the past six months some positive signs, albeit small, have finally been seen in the industrial property market in the Greater Cape Town area, according to Andy Beddow, a director of Baker Street Properties. 

Beddow says,  “Rentals are starting to pick up with gross rentals now averaging R35.00.m² (excl. VAT) from R32.00.m² (excl. VAT) early in 2013 for existing facilities. The increase is driven by recent new developments, which now command rentals of more than R60.00.m² (excl. VAT) and the conversion of older redundant factories into more suitable distribution facilities.

“At Baker Street Properties we use our extensive database to track the industrial property vacancies across the greater Cape Town areas, including buildings, which will become vacant within the next six months. Based on this data, we have seen a decrease in the vacancies in the greater Cape Town area from 611,000m² in March this year, to 566,000m² in September. This is a decrease of more than 7%, which is encouraging, and is the driver starting to nudge average gross rentals upwards.”

Other statistics revealed that 72% of current vacancies are reflected in facilities larger than 1,000m², the bulk of which are in older nodes from Epping to the Bellville South area, traditionally in the larger industrial townships. Epping for example, has seen a large take up of vacant space, as older buildings are being redeveloped into more suitable and versatile facilities. These re-developments are almost exclusively distribution centres (DC’s) with the exception of one or two manufacturing facilities, motivated by redundancy of existing space and a lack of available modern high volume facilities.

For modern DC’s your coverage of building to land is a maximum of 60% in order to cater for yard area to accommodate large commercial vehicles.  These older townships offer a lower land base price than the new townships and often prove more economical even including the demolition of existing buildings.

 “There is a looming increase predicted on vacant land price on the horizon (albeit nominal compared to the pre- 2008 peak) which we expect to play out during 2014. The popular development nodes being Airport City, Brackengate Business Park and Sheffield Park (bordering Lansdowne Road and the N7) have virtually no land of significance left for sale.”

Lloyd Nussey, a director of Baker Street Properties, comments, “On the flip side, we now have two new industrial townships coming on stream in the north. One is Atlantic Hills, which is close to Atlas Gardens and the other being the newly launched Rivergate township, north of the Parklands area, where land can be purchased from R1,200.m² (excl. VAT) – contact us for details on these properties.” 

“We have noticed no movement on annual escalations, which seems to have settled on 8% for medium term leases, although purpose built developments attract more favourable escalations. Furthermore, there continues to be a lack of industrial buildings for sale, particularly smaller units, which is probably a reflection on developers’ access to finance these type of developments.”

Beddow and Nussey concluded, “From a tenants point of view, should you find your lease expiring in the next six months, please make contact with us to explore what options are available. We have seen a marked increase for tenants engaging in our services to assist in renewing their leases.  Working on a fee based on a percentage of savings achieved, we find various avenues to add value on these negotiations for 
the tenant.”

“As a landlord, if you require assistance with tenant retention and need market knowledge and our negotiation expertise, please contact us to assist.” 

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