Industrial property still giving better returns than office and retail properties

Posted On Tuesday, 27 January 2015 13:03 Published by
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Industrial property still giving better returns than office or retail properties

Rawson Commercial

The Rawson Property Group's commercial division, which now has 33 franchises operating countrywide and which intends to grow steadily in the year ahead, has commented that their experience with industrial property sales and letting during 2014 ties in closely with comments recently made by SAPOA (South African Property Owners Association), says Leon Breytenbach, National Commercial and Auctions Manager.

In SAPOA's October 2014 industrial vacancy survey, says Breytenbach, they reported that for the six month period between 1st January to 30th June 2014, industrial property generally outperformed both office and retail property asset classes. Industrial property released a return of 9,7% over the same period made up of an income return of 5,2% and a capital growth of 4,5%.

On an annualised basis, says Breytenbach, some industrial properties could at the end of this year offer a return of between 17 to 20% per annum should the industrial property trends continue at this pace. Western Cape industrial properties led the field (with an average 11,9% return) which put them ahead of Kwa-Zulu Natal with a 10,6% return and Gauteng 9,2%.

By way of comparison, in the six month period reviewed, retail gave a 7,4% return and offices a 5,8% return.

Breytenbach drew attention to the increase in industrial developments approved at a municipal level during 2014. Although not quite at the 2007/2008 levels, this does, he said, signify a healthy continued interest in the industrial property environment for the year ahead.

"But industrial property should still be approached with caution", he warns. "Investment into this asset-type should really be reserved for the discerning investor, who is fully aware of the corresponding risks and who can approach the investment in a hands-on manner.

This asset class still has the highest percentage of bad debts. For instance, new start-up businesses, especially those who often occupy light industrial properties, often fail to survive the first two or three years of existence.

But given the high demand for industrial space of less than 350 m2 (in the right areas of course), defaulting tenants in this category can quickly be replaced if need be. The same, however, cannot be said of the bigger 2,000 m2 plus industrial units, especially those that have been custom built for a specific industry."

Looking ahead, says Breytenbach, he shares SAPOA's view that the current trends within the industrial property sector are likely to continue.

"Given that industrial rentals are coming off a low rental base (as opposed to office and retail space which already have high base rentals), industrial properties seem a little more resilient to those unwelcome annual rental increases, rising electricity and labour costs, and the ongoing delays in municipal approvals will continue to bug South Africa property owners."

Last modified on Tuesday, 27 January 2015 20:01

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