Investing in industrial 'wise'

Market commentators believe that investing in the industrial market bodes well as market growth is expected to be good as a result of the growing demand. Here are comments on specific areas. By Kara Michaels

According to Ken Reynolds, divisional director of Nedbank Corporate Property Finance Gauteng, investing in the industrial market is wise as a result of the growing demand. "Market growth in the industry will be good," he says. "Finding well-located land with services is a boon as well as under-let space. A big driver of this is the cost of developing new space."

Reynolds points out that the real growth nodes are Longmeadow Business Estate, Linbro Park, new extensions to Jet Park, Elandsfontein (airport), Meadowdale, Route 24, Highveld Techno Park, and Samrand, where activity is starting. "Effectively there is no land left in prime sites such as Linbro Park and Longmeadow," he says.

Other areas to look at are Midrand / Sage Corporate Park, Gosforth Park, Laser Park, Kya Sands, and the M2 Strip / Selby.

"Even though interest rates are increasing and people think the property market is coming off the boil, I don't believe it. Commercial property still has some steam left and we will see activity in the industrial market," says Reynolds.

John Loos, property strategist for FNB Commercial banking, is also upbeat about the prospects for industrial and warehouse space. "The current period of rand weakness is supportive of solid economic growth during the phase of interest rate hiking, and the South African Reserve Bank is not going out of its way to severely hamper the growth. Although the Manufacturing PMI has come off its high of a few months ago, an index value still well above 50 (implying expansion) augers well for the manufacturing sector in the near term," he says.

"Coupled to the good growth situation, industrial and warehouse space has a significant constraint in terms of supply of vacant space. This relative scarcity is reflected in strong rental inflation rates in key industrial areas. Rode reports rental inflation for the second quarter on 500 square metre units ranging from 12,6% year-on-year for the East Rand to 42,1% year-on-year for the Tshwane metro.

"In the battle between scarcity of industrial space and interest rates it is believed that scarcity will be on top in the near term, and although interest rates are a negative, in this category of
commercial space, I don't expect the negative impact to be noticeable. The 33,1% total return for industrial property reported by the IPD could thus be more or less matched in 2006."

Following is commentary by Reynolds on various industrial areas.

Nelspruit: "The economy in these areas runs the industrial market; the likes of SAB and Coca Cola use the premises in the town to service the greater area."
Witbank and Middelburg: "Similar drivers to Nelspruit but it also enjoys the benefit of mining and manufacturing."
Polokwane: "Big warehousing and distribution here as well as services into Africa."
Hermanstad (Pretoria) and Pretoria West: "Industrial areas where it is not wise to invest money."
Rosslyn: "Links to the motor industry, so while the motor industry does well, so will it."
Samcor Park (Pretoria East): "Lives off the motor industry."
Silvertondale (Pretoria East): "Desirable area for light industry."
Waltloo (Pretoria East): "Older township concentrating on heavier type industries."
Hennops and Gateway (Centurion): "Everything is looking up on the western side of Ben Schoeman – there is strong demand."
Route 21 (Centurion): "All stands in the industrial area have been sold."
The Mint (Midrand): "Large warehousing and distribution space."
Samrand (Midrand): "More development is expected in this area."
Commercia (Midrand): "Hasn't done that well. I think people got frustrated with congestion on the Allandale offramp. So even though location is good, access is a problem."
NI Strip Central (Midrand): "Provides good accommodation for high profile uses."
Kyalami (Midrand): "It is fully developed and provides good rates."
Wynberg (Sandton): "Is improving."
Kramerview (Sandton): "Is on the highway and it has good names. It is a good investment if the right rates can be achieved."
Marlborough (Sandton) "Near a township. I fear to tread in some parts, while other parts are okay."
Frankenwald (Sandton): "It has not been developed yet. However, as it is across the road from Linbro and has exposure from the highway, once it gets developed there will be high demand. So I advise getting in as soon as possible."
Strydom Park: "The area has a fair amount of retail, there are seldom vacancies, and it continues to get good rentals."
Kya Sands / Northlands (Randburg): "Closer to Lanseria, it is doing extremely well."
Laser Park (Randburg): "Smaller users are doing extremely well."
Longmeadow Business Estate (Edenvale): "It has the best space."
Eastleigh and Sebenza (Edenvale): "These are older areas, and it remains a mystery to me as to why Sebenza is always full and achieves good rentals. It is next to the airport though."
Spartan (Edenvale): "Fair demand in this mixed township."
Wadeville (Germiston): "Parts of it are good because it is cheap and convenient."
Industries East and Central (Germiston): "Mostly older factories with some new space."
Gosforth Park (Germiston): "It is the next growth area, but it has
to be developed. The area around Gosforth Park is eliciting a lot of interest."
Jet Park and Airport (Airport Area Centurion): "The freight forwarders have moved in. It is a good space, which is doing very well."
Boksburg North (Airport Area Centurion): "It is an older area, and while it has some good, it also has much that is not that desirable."
Far East Rand: "This area accommodates the big guys."
Alrode (Alberton): "Some good names there, convenient and not too expensive."
Alrode South: "Mainly an owner-occupier area that has shown slow growth."
Heidelberg road (Johannesburg): "It will continue to be good from Heidelberg Road to Gosforth."
M2 Strip (Johannesburg): "The free drop off from Kaserne will assist growth in this area."
Industria (Johannesburg): "It is geared for the larger user and is similar to Alrode. It is not a great area to have invested in though."
Stormill (West Rand): "It is a transport node so it is convenient, but no big growth has taken place."

Trends in the industrial property market include a demand for sectional title industrial areas; the popularity of industrial parks where security is shared like Industrial Parks; increased flexibility when it comes to building designs; increased desire for corporate head offices to be on site; and the subdivision of large spaces.

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