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Mixed Messages

Much like gravity, South African economics is sometimes difficult to understand, and despite an uncertain market and flat economy, the local industrial property market continues to gain positive momentum.

This is supported by the key indicators with average gross rentals increasing to R46 per square meter, escalation rates remaining consistent at 8% and a decrease in the overall vacancy rate by 3.52%

Significant investment in new industrial developments along the N7 highway and Western Seaboard. Brackenfell, Montague Gardens and the Airport further highlights business confidence despite our current economic climate. Although these developments do demand a premium, tenants are prepared to pay higher rentals for increased efficiency and accessibility to the main arterial routes.

What is of concern is the continuing shift towards ever larger distribution facilities and the shrinking demand for manufacturing space as our economic output progressively relies less on manufacturing and more on imports. Last year’s load-shedding, political uncertainty, and a possible ratings downgrade continues to create uncertainty, and will undoubtedly contribute to a further downturn in this sector if remained unchecked.

So why is the local industrial property market doing so well?

Cape Town’s economy is growing faster than any other city in South Africa with a current population growth of 2.6% and has an estimated population of 3.74 million. This is likely to grow to 4.2m by 2022.

The city was recently named as the most entrepreneurial city in South Africa, with the percentage of Capetonians pursuing business opportunities almost three times higher than the national average

What is also apparent is that there has been a marked increase in companies wanting to establish their business and operations in the Western Cape for reasons such as good governance, infrastructure and local council’s support for new property developments. This migration has had a positive influence on the local economy and a steady increase of demand for industrial property.

With little land available and the cost of subdividing large old properties making re-purposing still unattractive to investors, there is a serious under supply of smaller industrial units from 100-500m2. Whilst this does account for the steadily increasing rentals and the particularly low vacancy rates in this sector, it may progressively hamper start-ups and smaller industries which are such an important part of our economy.

Of significant interest is the ever increasing amount of enquiries we receive from investors looking to purchase industrial property even at moderate year 1 yields. It is definitely a Sellers Market!

For more information on purchasing, renting or investing in commercial and industrial property in Cape Town, please contact Robert Ryll | Cell Number: 082 374 2662 | Landline: 021 552 4100 or Email: rob@primeindustrial.co.za


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