Commercial Industrial Property still a sound 'Long Term Investment'

The industrial property market is a sound prospect for investors who are willing to take a long-term view and with the right tenant, says Heidi Franck, Managing Director of Intigra, a leading quantity surveying firm specialising in asset management.

This is in spite of the fact that the stability that has characterised the industrial property market for the past two years, brought on by flat economic conditions, and continues. 

“The Purchasing Managers Index – which, essentially, is a measure of manufacturing activity in the country – tells us that there is little growth in manufacturing. This, of course, has implications for the industrial property market,” she points out. Added to this, the European Index is also showing little movement, while locally back in South Africa, moderate economic growth has combined with low business confidence to create a situation where there has been little growth in the industrial property sector since 2009. 

As a result, there has been little escalation in rentals, with rentals for the Greater Johannesburg area growing by only 2-3% during the past year. “At present, we are seeing greater demand for older units which charge more affordable rentals and are therefore more attractive to tenants. In contrast, there is more uncertainty around smaller units. Because of this, owners of small units are charging lower rates.” 

Franck anticipates that these conditions will continue for at least another year. “The industrial property sector is dependent on both the local and international economies, because it is heavily influenced by import and export performances,” she explains. 

The benefit to industrial property owners is that the sector is less likely to be influenced by sudden highs and lows. Because it is slow to adapt to trends, it is important to ensure that any leases entered into are undertaken with great care. Careful consideration must therefore be given to factors such as the nature of tenants, says Franck. 

“Commercial property owners are able to fill their buildings with several tenants. Industrial property, on the other hand, carries a greater risk profile because properties typically comprise giant warehouses occupied by one tenant. If that tenant is vulnerable to economic conditions and changes such as electricity tariff hikes, they may go under – with disastrous consequences for the property owner.“ reiterates Frank.

Remember that, as an industrial property owner, you are buying into the lease as much as you are investing in the building itself. Be clear on the terms of the lease, as these will remain in place for a significant period, and seek tenants with a strong track record that have proved themselves able to withstand economic trials,” Franck concludes.