Finding The Right Commercial Property

Industrial properties and office space in demand - If you know where to look

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By Monique du Toit

JLL’s recent Q3 market report focuses on the industrial and office markets in South Africa’s main cities, namely Johannesburg, Cape Town, and Durban. Its findings show that, while the economy may not be flourishing, there is opportunity in the right areas.

Offices

JLL reports that, while the economy continues to struggle, it was increased activity within the financial and business services sector of the economy that helped us move out of a technical recession in the second quarter. Development of office spaces has increased in all three metros, with Cape Town once again showing the best results.

Vacancy rates in the Mother City were down in all major asset types in Q3, with the most impressive decline being seen in Grade P accommodation (vacancy rate: 7.7% compared to 9.4% in Q2). Examples of Grade P nodes in Cape Town include Tygervalley/Bellville (showing rental growth rate of 5%) and Century City (6%). Meanwhile, Grade A nodes, including the Waterfont, grew by 4% in terms of rentals.

Over in Durban, vacancy rates have shown a notable decline (down to 11.7% from 12.3% in Q2). uMhlanga showed the highest rate decline, with an estimated net absorption of 4 900 sqm, followed by Westville’s 2 400sqm. Areas across Durban have seen a slight improvement in rental rates, a total increase of 13% ifrom Q3 2016. As development takes hold, interest is returning to the CBD, with vacancy rates declining to 16.8% in Q3, compared to 17.7% in the previous quarter.

Johannesburg’s office market once again recorded the highest vacancy rate, albeit an improvement from the previous quarter (down to 12.6% compared to 13.3% in Q2). The inner city in particular is plagued by high vacancy rates (18.5%), with decentralised nodes recording a collective rate of 11.2%. Areas such as Sandton, Rosebank, Woodmead, and Bryanston genreally have a positive impact on the market, while Parktown and Midrand seem to negatively impact the vacancy rate. 91% of the national office developments are taking place within 10 nodes of the city, but this is likely to come to a close once current projects have been completed – a dwindling number of developments are being announced. At present, Johannesburg is experiencing an overuseply of stock, but this is believed to be short-lived as the city remains the business hub of the country.

Industrial

Durban’s industrial nodes’ vacancy rates show considerable variance. Industrial nodes in Durban North (like Riverhorse Valley) enjoys vacancy rates of around 0.3%, fetching rentals as high as R78/sqm. In contrast, nodes like Umbilo and Mobeni historically record higher vacancy rates, with very little to no growth in rentals. Industrial tenants look for high quality accommodation within close proximity to the airport and main routes. A proposed new industrial development in Kingsburgh, close to Southgate, aims to increase the amount of rental stock.

Johannesburg’s industrial market has shown interesting movement over the last quarter. While vacancy rates have remained at around 4%, the spread of these vacancies are of note. While southern Johannesburg has historically been plagued by high vacancy rates in its old buildings, the area is now showing one of the lowest vacancies. Southdale/Booysens measures at 3% vacancy in Q3, with Germiston, Alrode, and Alberton recoding vacancies below 1%. The eastern node, however, seems to be feeling the effects of ongoing developments: Kempton Park, for example, measured a vacancy rate of 11%. The prime industrial market has shown little growth over the past year, indicating that the market may have reached a peak rate. Industrial accommodation in areas such as Midrand and Centurion have gone from R80/sqm to R75/sqm, and R70/sqm in some cases. While the trade sector shows marginal growth, export growth has been encouraging: rising 7.1% y/y, while the transport, storage, and logistics sector recorded a 2.2% growth in Q2.

For the full article, as well as details on commercial and office developments to watch, read our free monthly digimag here. 

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