Industrial property rentals rise on Cape Town demand
Rentals of well-located Cape Town industrial properties have risen substantially, in some cases as much as 10%-15%, thanks to strong demand and limited supply of new buildings.
“We anticipate that existing industrial stock will continue to see sustained demand, especially as there is some evidence of companies looking to enter or grow their footprint in Cape Town compared to Johannesburg,” Timothy Irvine, Growthpoint regional asset manager for the Western Cape, told Business Day.
Irvine said this demand also created opportunity for more new industrial property stock to be brought to market as rentals are meeting the new-build yield expectations.
Growthpoint is a JSE-listed real estate investment trust (Reit) which owns a diversified property portfolio across Africa, Australia, the UK and Eastern Europe. It owns a 50% stake in Cape Town’s V&A Waterfront.
Take-up is for space measuring 2,500m²-5,000m², and enquiries for more than 10,000m² have risen recently. Cape Town A-grade buildings, considered top drawer, have gross rentals of R70/m²R75/m², while B-grade buildings let for R55/m²-R65/m². New modern buildings with standard specifications command up to R85/m² with these rental levels expected to increase, said Irvine.
According to the Rode Report for the third quarter of 2022, nominal market rentals rose 5.3% nationally. In real terms, however, rentals dropped due to 11% building cost inflation.
Cape Town recorded the highest nominal growth of 6.7% year on year for prime industrial space measuring 500m². The metro also has the lowest vacancies since the first quarter of 2020.
Irvine said the resurgence in the industrial property market has seen their Western Cape portfolio vacancies reaching a low of 0.8%.
Growthpoint reported in its annual results for the period ended June 2022 that, regionally, the Western Cape was the best industrial property market performer.
Take-up of space is much higher in this region, driven partly by semigration trends where companies are either relocating to the region or expanding their footprints in the area. Irvine said that in the past few months, they closed significant industrial leasing deals in Cape Town, including Meat Only at the modern Greenfield Industrial Park and Pioneer Fishing in Montague Gardens.
He said that Greenfield Industrial Park has green features including solar power, water-wise landscaping, waterless urinals and low-energy light fittings, all of which appeal to tenants.
Montague Gardens is a wellestablished industrial area popular for its proximity to Cape Town’s port and CBD and supported by excellent arterial road access via the N7 and N1.
“Cape Town’s industrial property market is distinguished by the fact that there is limited stock available. Existing Cape Town industrial areas are generally well located with access to main arterial roads, which is part of what is driving the popularity and pricing of this property segment in the region,” said Irvine.
Western Cape-focused Spear Reit reported a robust performance in its well-located industrial properties with occupancies and rental collections sitting at 98% and 95% for the six months ended August 31.