Its time to revisit the Industrial property Clock again. There are so many versions of the property clock on the internet, that we decided to create our own simple version. You can download a copy of the Airport Property Clock here. The last time we had a look at the Industrial property clock was in May 2014 . It is important to stress that we are referring to the Industrial Property Clock in the major industrial areas close to Cape Town. The Cape Town property market has a different dynamic to the rest of SA in that the local residential market has been driven up by Semigration. This trend has also resulted increasing demand for industrial property around Cape Town.
This year we have been faced with the Greek economy narrowly escaping an exit from the Eurozone, collapse of the Chinese stock market, low growth in manufacturing and retail sales and low GDP growth. On the flipside, the US recovery is gaining momentum with the prospect of a September interest rate hike fueling Dollar strength. We have had a minor interest rate hike locally, signalling the end of the long low interest rate cycle that we have enjoyed for many years.
We are experiencing further shortening supply of industrial investment and owner occupier properties and Industrial vacancies have fallen significantly. New industrial buildings are usually tenant driven with few speculative industrial property developments. As an example, Growthpoint’s Industrial portfolio in Cape town currently has less than 2.5% vacancies. Industrial Rentals in Cape Town are still increasing but at only about 6% per annum and until there is a significant turnaround in the performance of the manufacturing and retail sectors, strong growth in industrial market rentals cannot be expected (according to a recent Rode & Associates press release). whilst the banks remain cautious, funding is opening up. Land is selling again with the last plots at Airport City recently being sold out at a hefty R1800 per m².
So the question we are again asking is, where are we placed on the face of the industrial property clock as we approach the final quarter of 2015? In May last year, we felt that we were in the 8-9 O’clock range. We now believe that with interest rates rising, rentals and construction increasing, we are in the early stages of a peaking market, likely between 9pm and 10pm. With electricity constraints, low commodity prices and low growth rates, it is unclear how long demand for industrial property will remain robust, making it very difficult to predict how long it will take to get to 12 o’clock.
Guy de la Porte is Cape Town’s Industrial Property Specialist.