Recession shows no slowing for commercial and industrial property development

Good news for the commercial and industrial property sector. While residential and retail property take a huge knock, Stats SA revealed earlier this month that the star performer during the 2nd quarter of this year has been construction. Despite South Africa slipping into a technical recession, activity in this sector has increased by 2.3% mainly due to the rise of non-residential buildings.

Listed commercial and industrial property developer, Heartwood Properties CEO, John Whall says: “Property prices for commercial and industrial zoned and serviced land seems to be maintaining their value with no notable reduction in prices. Especially zoned and serviced land that is commanding extremely high prices in Cape Town and in the prime areas of Joburg. We noticed that commercial and industrial investment properties with good leases in place are also holding their value in this market.”

With land reform looming, the country has been unsure about the outcome of the decision and Whall believes that even if certain parts of agricultural land should be converted to zone serviced land, it will still take up to 10 years to materialise. What might eventually happen is that the risk of holding large portions of agricultural land may even push up the price of zoned land in the future.

As for commercial, the rentals of B and C grade offices have reduced due to higher vacancies but the vacancy levels of A and P Grade space remains relatively low. Whall predicts that the ongoing lower vacancies of good warehouse space especially in Cape Town could result in increased rentals for the better properties even as the economy slows down. This is partly due to the limited supply of new space onto the market.

“We’ve seen a bit of a lag in the Cape Town rental rates when compared to prime warehouse space in Gauteng and KZN and we could expect these rentals to increase above inflation over the next 18 months,” concludes Whall.

This means that things are looking up for this sector and shareholders shouldn’t rush to offload their shares or even their properties just yet. The overall market will react to any increases in interest rate hikes and that could have an impact on the sale prices of investment properties.