Industrial property continues to outperform, even amid pressure on manufacturers

Industrial properties continue to outperform both office and retail assets, with rental growth averaging 5.1% so far this year, well up from the 2.2% for the full 2021, according to the latest Rode Report on the SA property market.

The report, released by property consultants Rode & Associates, found that the industrial sector is still comfortably the best placed of the major non-residential sectors - industrial, office and retail. One of the key reasons for the outperformance is the largely non-speculative nature of developments. Another driver has been the good performance of logistics due to the online sales boom, which is expected to grow even further.

"Traditional manufacturing remains under pressure. But the flipside of the coin is that imports that replace SA manufactured goods also need storage," states the report.

"The industrial property market continues to be the cream of the crop due to its superior nominal rental growth and low vacancies, especially for warehouses linked to logistics, which stems from the strong online retail sales market."

However, it cautions that in real terms - accounting for inflation - one must take note of building cost inflation, which remains elevated at about 11%. 

Regionally, Cape Town is looking good with nominal rentals (therefore not taking inflation into account) for prime space of 500m² up by 6.7% year-on-year in the third quarter of 2022, remaining above pre-Covid-19 levels as the demand for space exceeds supply. This was the strongest rental growth of the major industrial nodes, despite growth slowing somewhat from 7.2% in the second quarter of 2022.

Nominal rentals in Durban and the Central Witwatersrand also continue to perform well, with growth of 4.6% and 4.4% respectively - slightly lower compared to the second quarter.

"Fundamentals in Durban are looking better as the July 2021 unrest and floods in 2022 created a shortage of space in some areas," states the report.

On the East Rand, rental growth picked up to 3.9% from 2.4% in the second quarter after averaging about 1% in 2020 and 2021. 

Vacancies remain the highest in the West Rand, Gqberha, and Bloemfontein at between 5% and 10%.