"The economy is looking good and even with the recent interest rate hikes, there should not be too great an impact on yields as there is not as close a correlation between the two as people think," says Frank Berkeley, managing director of Nedbank Corporate Property Finance.
Jenny Venter, Nedbank Corporate Finance Market Research and Intelligence manager, says South Africa has had its residential boom, which was driven by low interest rates and low inflation rates. "This enabled people to upgrade their homes," she says.
"The top-end of the market has more or less levelled off. The wealth effect of high house prices fed into the retail market where retail sales were pushed up by cheap imports. This resulted in a plethora of retail space coming on to the market in the major metro centres, which is now extending to former townships like Soweto as well as secondary towns like Kimberly and Brits.
"The residential and retail property booms have kick-started the industrial property market with the strength of retail sales pushing up imports, resulting in an increased demand for warehousing.
"The market drivers of industrial property are building costs and vacancies as well as the capitalisation rates. High building costs and buoyant demand have pushed up rentals, resulting in landlords achieving double-digit rental growth. Capitalisaton rates are a function of investment demand, real rentals and bond yields. Together, these have pushed up industrial property market values."
Ken Reynolds, divisional director of Nedbank Corporate Property Finance Gauteng, says other factors that drive industrial property are consumption expenditure in Gauteng as well as the new mining charter, which effectively forces the owners of mineral rights to use them or they will be lost.
"Building costs continue to outstrip inflation. In some instances high building costs threaten the viability of some projects. Steel prices are also increasing and there is a shortage of cement," he says. "But there is still a demand for space, so building continues at a brisk pace.
"When it comes to bulk service, availability is problematic in a number of areas, including Kya Sands and Midrand, and the scarcity and price of zoned land is holding development back."
Information gathered from recent valuations on Gauteng and surrounding areas shows that the following rentals are being achieved: R42,50/sq m in Linbro (Frankenwald) Extension 28 (size 2,155sq m), R35/sq m in Linbro (Frankenwald) Extension 3 (size 4,799sq m), R35,64/sq m in Linbro (Frankenwald) Extension 3 (size 3,848sq m), R45,00/sq m in Linbro (Frankenwald) Extension 3 (size 1,026sq m), R27,80/sq m in Randjespark Extension 76 (size 6,362sq m), R27,50/sq m in Jet Park Extension 32 (size 7,705sq m), R33/sq m in Spartan Extension 2 (size 4,200sq m), R34/sq m in Meadowdale Extension 8 (size 1,217sq m), R22/sq m in Meadowdale Extension 3 (size 1,584sq m), R28/sq m in Meadowdale Extension 1 (size 1,374sq m), R43/sq m in Longmeadow Extension 1 (size 1,113sq m), R32/sq m in Laser Park Extension 3 (size 2,210sq m), and R27/sq m in Hoogland Extension 47 (size 3,070sq m).
"The older areas of Johannesburg have also started to achieve increased rentals. Booysens is up from R8/sq m to R18/sq m, Wadeville from R6/sq m to R20/sq m, and Industria from R8/sq m to R16/sq m," adds Reynolds.
"The only issue is that people renting space in these areas are not happy when their rentals are substantially increased by their landlords. As they have invested a lot of capital in the premises, they are not prepared to leave and will also not be bullied into paying higher rentals. So landlords might will not get the rentals they want."
Other market conditions that affect the industrial property market include skills shortages, bottlenecks in the planning process, EIA assessments delaying construction, transport by rail not being up to scratch, and the premium that is paid for good freeway access.
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