Market commentary

(Cape Town, 1 April 2004)  The continued strength of the Rand against a basket of international currencies has done little to dampen demand for industrial space in Cape Town. 

In fact, says Broll Property Group’s industrial broking director William Wakefield, rental prices have moved significantly in sought-after categories of space while stock levels are at their lowest recorded for the past ten years.  Increases vary from area to area but a general upward jump of 20% to 30% is common.

“Pressure on existing space is compounded by a shortage of available vacant land for new developments.  This has seen land values escalate more than 30% in some areas,” says Wakefield.

This mini-boom is no better mirrored than in the activities of Cape Town’s port.  An estimated R800 million has been earmarked for expansions to improve productivity; a welcome initiative after complaints of slow turn-around were levelled at the port over recent years.

According to authorities the number of vessels has declined but the size of those visiting Cape Town are larger than ever resulting in more cargo passing through the facility.  Estimates are that this traffic volume will continue to increase in the year ahead at an projected four percent.

South Africa’s generally strong economic performance is capitalised upon in the Western Cape.  Schooling levels are significantly better than the national average, unemployment levels are substantially lower, availability of basic household services is better and occupational data reveals a higher clustering of skilled workers in the province.

These factors have combined to keep the Western Cape growing its Gross Regional Product at a rate above the South African average for the past 20 years!

Traditional exports of fruit, wine and fish have been supplemented by beneficiated exports as well as new manufacturing products like furniture, leatherware, computer software, packaging and plastic products.  These products have a positive knock-on effect on the economy because they require higher skill levels – which generally translates into better salaries for workers - and generate greater margins.

“The number and value of private investors in the market is steadily increasing,” says Wakefield.  “Industrial properties are characterised by longer leases and higher rental returns than those experienced in the buoyant residential property market.  In addition to the better returns there is the opportunity to benefit from material capital growth.”

The shortage of new space and thriving Western Cape economy has seen situations where several prospective tenants or owners are vying for the same property, resulting in landlords achieving full asking price.

The short-term outlook remains extremely positive, particularly as there appears to be a correction up in prices following four years of stagnancy.

“Obviously there are several influencing factors at play.  But if you’re in the market for industrial space it may be appropriate to secure tenure and longer leases at today’s relatively low levels with reasonable escalation rates than once the projected increases come into force,” says Wakefield.

Developers, on the other hand, are reliant on available land.  The securing of strategic sites for future activities should be a high priority.

Ends.

For further information                 :            William Wakefield

                                                            Broll Property Group

                                                            Tel: 021 419 7373 / 082 807 0666

Issued by                                  :            Cullum Johnston

                                                            Imbongi Communications

                                                           Tel: 021 683 2685 / 083 500 8144