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Thursday Sep 08, 2011

'Industrial property sector in an upward cycle'

The industrial property sector is trying to hold its own through the economic downturn. Auction Alliance recently conducted research that reveals that the markets for industrial and retail property remain stable and continue to lead the commercial property market's recovery.

Rael Levitt of Auction Alliance comments, "Rising industrial rentals and increasing investor demand are having a positive impact on the overall growth of the industrial sector. The primary aim of investors in commercial property is currently income and the yields offered by well-situated and strongly-let industrial properties have proven to be highly appealing to investors against the current economic backdrop."

During the first quarter of 2011, there was a marked increase in investor demand for industrial property compared to the same period in 2010. "Recent movements in the macroeconomic environment are making industrial investors a little jittery, but the assertions about lower interest rates have had an immediate positive impact on investor sentiment."

Levitt believes that the industrial sector in South Africa mirrors the retail sector because many industrial properties serve retailers or are quasi-retailers themselves. He asserts that, in spite of concerns about weaker financial results from the larger retailers, as a whole the sector remains strong.

"As a developing economy South Africa's retail demand will accelerate which will fuel both retail and industrial real estate. A weaker Rand will also positively affect the exporters and industrial tenants that occupy these premises," he adds.

One of the key drivers of the healthy demand for industrial properties has been South Africa's robust growth as an emerging economy. The returns offered by industrial real estate are strongly correlated with global trade volumes. Emerging economies like South Africa are expected to outperform other countries such as the UK and US, which are currently experiencing considerably decelerated growth levels. "Based in the commercial hub of Sub-Saharan Africa, South Africans are acquiring and developing at a rapid pace. One very rarely sees empty shopping centres in South Africa and, while office space is a little more concerning, the fundamentals for a strong commercial property market are in place.''

A burgeoning trend within the industrial property sector is a move away from larger properties into more mixed-use properties. "Mixed-use developments are less of a risk for investors because they not only diversify the tenant mix, but also enable the delivery of a number of services under one roof." Mixed-use industrial areas such as Montague Gardens in the Cape, Longmeadow in Johannesburg and Springfield Park in Durban are currently the most sought after.

"We expect the industrial property sector to remain stable for the remainder of this year. In spite of our already fragile economy facing further setbacks, the current economic climate has created a host of opportunities for savvy investors within the industrial property sector."

Auction Alliance Press Release

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