|Much needed industrial property space is at last coming onto the Kwa-Zulu Natal market but prices are sky-rocketing in line with national trends.|
"We applaud the new developments that are coming on stream as it will ease the huge demand built up over the dramatic stock shortage," comments Alan Dryburgh, industrial broker manager for JHI Real Estate. "But it remains to be seen whether the market will be able to absorb the sort of rentals being mooted by some developers, he comments.
"New stock is currently available at around R39 to R43 sqm plus VAT a square metre and by year-end could go as high at R49 sqm", comments Dryburgh.
This follows the national trend of a wide discrepancy between what is referred to as "pioneer rentals" in new developments and existing stock. Average rentals in older areas such as Umbilo, Congela and Rossburgh are at around R15 to R18 sqm plus VAT.
The latest Rode Report shows that in the third quarter of 2005, Nelspruit fetched the highest "pioneer" rentals in the country at R45 sqm gross. This level for new buildings compared to average rentals in the town of around R19 sqm. Central Witswatersrand achieved the second highest rentals in the third quarter 2005 at R40 sqm, while average rentals were still also at R19 sqm.
Durban also breached R35 sqm in the third quarter of 2005.
Dryburgh blames much of the increase in rentals on building costs, which are at unprecedented levels. Statistics show that building costs (including building materials, labour, fuel and contractor profit margin) have risen by 85% in the past six years. This combined with land shortages has accelerated prices.
He adds that while the stock limitations are a national problem, it's worse in KZN due to the lack of physical space. "Johannesburg still has room for expansion but we do not have the same geographical spread."
He also highlights comments from Andre Stadler, Catalyst Fund Manager MD, in the latest Property Review who says that industrial rentals are being driven by strong manufacturing growth on the back of South Africa's retail spending boom.
Dryburgh concurs with the national view that despite industrial rentals surging and vacancies in prime industrial areas dropping to all time lows, there is still "steam in the market".
"It's a particularly positive time for existing landlords who are likely to see real rental growth due to stock shortages," he says.
Dryburgh says that the situation is similar in the office and retail market with strong demand and limited stock, but industrial should start seeing the great relative growth in rentals locally.