Gauteng Industrial Sector 2000

Posted On Friday, 15 February 2002 15:57 Published by
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The Industrial Sector

It is worth pointing out that from a macroeconomic perspective, the industrial property market may be negatively affected by the declining level of exports. From 11% real growth in 1996, Nedcor reports that exports grew by a very low 0,4% in 1998.

The Industrial Sector

It is worth pointing out that from a macroeconomic perspective, the industrial property market may be negatively affected by the declining level of exports. From 11% real growth in 1996, Nedcor reports that exports grew by a very low 0,4% in 1998. Nedcor forecasts 0,5% real export growth in 1999, followed by 4% growth in 1999. On the upside, the expected upturn in the macroeconomic cycle in late 1999 and early 2000 should provide some benefits for the sector, especially when considered in the light of government initiatives like Spatial Development Initiatives and Industrial Development Zones.

For 1998 Statistic's S.A. reports that industrial space in Gauteng grew by 306,085m2 - or R398 million worth of new industrial & warehousing buildings completed. Significant activity was seen in the following nodes especially:

  • Boksburg -- 26,120m2
  • Germiston -- 45,181m2
  • Midrand -- 64,327m2
  • Randburg -- 21,050m2
  • Johannesburg 20,231m2

Industrial development activity in Pretoria, even Centurion, was limited. However, the data for building plans passed amounted to 582,426m2 which indicates the level of activity expected in 1999 and 2000.

Before turning to a nodal analysis, please consider the following graph of prime industrial land prices in the Central Wits, East Rand and Pretoria regions. Central Wits remains a cut above the other two areas, although the East Rand does generally see higher prices than Pretoria’s industrial nodes.

Johannesburg's southern industrial nodes have seen fairly steady levels of activity over the past year, especially along the M2 motorway from the Crown node and eastwards, although rentals have remained static in the main. Some evidence of sales activity is emerging, especially since interest rates have started to decrease.

As a benchmark, industrial land in good nodes is achieving in the region of R140/m2 to R150/m2.

Tenants are, in some cases, opting to purchase their buildings at good prices as the availability of bargains rises with a more lenient view on the part of sellers. This is expected to drive up the level of sale activity in the industrial sector in the next few months.

The older nodes like Selby continue to see some activity, but generally it is driven by movement within the node - as a result of expansion or re-structuring - rather than the entrance of new tenants. Re-development does not appear to be a viable option in the industrial market, where it is often cheaper to build a new property in a more desirable area than to attempt to reclaim an old one. In the case of node suffering from urban decay, the swift decline in rentals offers the best hope for improving occupancy levels.

On the topic of surrounds, the industrial market continues to seek out an aesthetically pleasing environment - although perhaps not to the same extent of the office sector - in addition to functional features that are well designed and practical. Issues such as access - within the node, not only to and from the node - and proximity to markets are still stock requirements for industrial development.

In City Deep, Fedsure Park has attracted tenants as diverse as mining procurement companies, aluminium window manufacturers and retail distribution centres. Recent deals of between 600m2 and 4,000m2 have been concluded at gross rentals of between R14/m2 and R20/m2 - although local brokers reckon that R16/m2 is a good, general benchmark for new space in these areas. The proclamation of additional land, with rail access, in City Deep has been tenanted by import/export companies.

There is an initiative afoot to establish a Special Economic Zone at the container terminal and the effect of this on the industrial property market would be interesting.

Crown City has seen some warehousing development, but office projects are less likely to happen in the short- to medium-term - not least because of the lack of retail amenities for office workers. Nearby Ormonde, on the other hand, can offer shopping facilities to office staff and is achieving gross rentals in the region of R32/m2. Property managers too report that demand in Crown has been high and cite the example of Crown Industrial Park.

In the north-west, Strijdom Park has evolved into a light industrial node with a strong focus on wholesaling, bulk retailing and services. One of the consequences of this is that the rentals in the node have moved steadily upwards, in excess of the range normally associated with the industrial sector. Further north, Kya Sands continues to develop, with a trend towards smaller mini-units and owner-occupied premises.

Certainly the industrial market is moving along, but at a consistent pace rather than swiftly. The one main exception to this would seem to be Linbro Park in Sandton, which has developed very quickly over the past few years especially since the completion of the London Road off-ramp. Despite the fact that this off-ramp is also the access point from the N3 highway to Alexandra, there appears to be a market perception that Linbro Park is 'separate' from Alexandra, and thus not plagued by the problems of crime usually associated with the former township.

Wynberg is seeing some interest from smaller users, but strictly on the industrial side. Gross rentals being achieved for this type of space are between R10/m2 to R14/m2. Existing office properties in the node are difficult to lease and the node is not perceived to be an office location. However, businesses servicing the commercial node in Sandton are in evidence, like motor-related workshops. Larger premises are proving harder to let.

The northern nodes of the East Rand - and especially Kempton Park - are continuing to enjoy strong levels of activity and although the market remains tight, deals are being done and there are the first signs of a market upturn. Sufficient stock exists to cater to demand, especially with the movement of tenants caused by buy-outs, contractions and expansions.

One of the constraints in the market is the lack of supply for large spaces. Although small businesses are playing an increasingly important role in the industrial market, the demand for industrial property in excess of 10,000m2 does exist and is difficult to accommodate. The key problem is that large-space tenants are generally unwilling to pay the rentals which developers require in order to make these big projects viable.

Midrand continues to grow northwards towards Centurion, with activity evident in developments like Corporate Park and Century City. Premises with freeway frontage at Corporate Park are enjoying consistent demand and local brokers report that gross rentals of between R22/m2 and R23/m2 are the norm for office/warehousing space with the trend being for approximately 30%to 40% of offices. Century Park, which lies in Centurion itself is developing as a distribution node, taking advantage of good access to the north and the south.

One of Midrand’s strengths is its ability to meet demand for a single office/industrial address, but the question is what effect this has on the retail sector. The existing capacity constraints in the Midrand node must also be a key consideration for retail and entertainment projects.

In the long term, the expected opening up of AECI land in Modderfontein - and the planned improvements to road infrastructure as a result - could be of great benefit to Midrand by opening up better access to the East Rand, and thus Johannesburg International Airport. On the subject of roads, the opening of the New Road interchange did seem to alleviate traffic when it was opened last year, although some local brokers say that additional access and the construction of new roads will be necessary to provide additional capacity in the future.

While Midrand to the east of the M1 motorway has tended to develop faster because of better infrastructure, the west is also seeing its share of property market activity - especially in the office market, as discussed above.

Brokers report that demand in the node has flattened, rather than declined, in the past year but point to a growing under-supply of space which should push rental up in the next few months. New tenants include upmarket furniture showrooms, pharmaceutical companies and the like but the information technology sector is a primary driver of new demand for space.

A final comment on the Midrand market is that there seems to be a growing differential between A-grade and B-grade premises. Whereas space in Midrand has seen little variation between the grades in recent years, a separate B-grade market is reportedly emerging at around R18/m2. Brokers say that B-grade vacancies are higher than A-grade, despite the rental differential. This is arguably a result of the high-tech requirements of many of Midrand’s tenants. The question is whether or not the potential to exists for landlords to renovate and upgrade B-grade premises to A-grade standard.

In Pretoria’s industrial market, Centurion is currently the rising star. Although not as popular as Midrand, the node offers many of the same advantages at - currently - lower land prices and rentals. Distribution centres, mini-factories and other industrial space are in evidence in the node - especially Samrand, Hennopspark and Highveld Park - but activity is not limited to industrial projects. JHI is also aware of office and retail projects which are also being planned for Centurion.

Industrial brokers report that, in other nodes, enquiries are tending to be for larger industrial premises, rather than mini-units or mini-factories, and that this demand for larger space often cannot be accommodated. With high interest rates, new developments is seen to be overly expensive and this is exacerbating the market’s inability to cater to demand. Traditional industrial nodes such as Waltloo and Rosslyn are quiet and there is a perception that they are starting to look rundown and old. At the bottom end of the market, premises are available for as little as R2/m2.

Publisher: JHI
Source: JHI

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