Property Funds moving towards cleaner industrial warehousing.
Property groups and investors in general are shifting to clean industrial properties focussed on light manufacturing, warehousing and distribution as harder manufacturing struggles.This is while more and more of SA’s economic output comes out of services and less out of hard line manufacturing.
The likes of SA’s biggest industrial property owner, Capital Property Fund, believe heavy manufacturing presents an unattractive business case.“There is huge pressure on SA’s manufacturing sector. Capital sold out of heavy manufacturing properties some time ago and we don’t see signs that suggest we should go back to that space,” Executive Director at Capital Property Group, Andrew Teixeira says.Capital’s industrial portfolio is centred on warehouses and distribution centres but it also includes light manufacturing factories.“Heavy manufacturing is commodity based and can happen in many countries other than SA. You have to be making a niche product to do well with it in this country,” Mr Teixeira says. In 2004 it accounted for 19% of the economy. In 2013 it accounted for 11%. Labour has priced goods and services to levels which are uncompetitive with SA’s emerging market peers. Manufacturing is in serious trouble and it does not have much of a future in SA,” Meganomics economist Colen Garrow says.
Growthpoint Properties’ divisional director for its industrial portfolio, Engelbert Binedell says industrial property is often misunderstood as a part of property. Growthpoint has about R9.3bn worth of industrial properties which represents about 17% of the group’s domestic assets.“Retail and offices are usually seen as being sexier. Still there are conditions developing to show that industrial property has an exciting future in SA,” Binedell says.While Gauteng remains the hub for the industrial property class, upgrades to port infrastructure mean warehouses by the coast are becoming attractive.Binedell says he expects Cape Town and Durban to face a surge in demand from logistics groups in the next few years.“Infrastructure is being rolled out at our ports. The industrial sector is healthy at Cape Town, Durban and Port Elizabeth and I think a massive pick up is on its way,” Binedell says.
In about five years, online buying will boom in SA and this will create large demand for warehousing.“Companies are going to need to store not only fast-moving consumer goods but other goods. SA may have a shopping mall culture but accessibility to online shopping will see people buying goods off the Internet,” he says.He also says that industrial property is gaining a lot of interest from the listed property funds when it used to be more popular with many unlisted funds.. It seems the improved infrastructure by Durban’s ports and the increasing business activity in Cape Town; are among the key drivers,” he says.
Stanlib’s head of listed property funds, Keillen Ndlovu says industrial property has strong fundamentals in SA, which is part of the reason why his funds have stakes in the likes of Capital Property Fund and SA Corporate Real Estate Fund.These funds’ distribution and warehousing assets are attractive, according to Ndlovu.“Yes, we like the industrial space. The fundamentals are good. Rental growth has been good with 7% growth in the sector in 2013.“Vacancies are low across all types of industrial property. In fact, than industrial sector has lower vacancies than the retail and office sectors,” he says.
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