We have adjusted our reporting period to calendar quarters in order to remain aligned with other reporting bodies. The comments below are from our agents experience in the market during the reporting period. All rates quoted are actual figures achieved and not “asking” rates. If we have not had any change or have not had any transactions in the areas noted, we have left the figures unchanged.
We are very happy to put the second quarter of 2023 behind us and look forward to a continued slow but noticeable improvement in the commercial property sector. With the opening of Oriprops Commercial Property Cape Town branch in Century City Cape Town, our main focus will be on the Western Cape in this report deservedly so, as this area continues to show growth and demand.
The market appears to have shifted in that, despite ongoing bouts of load shedding and a stagnant economy, business seems to have to come to terms with the trading conditions and demand is increasing, albeit slowly and in certain nodes. The small office market is definitely seeing an increase in demand as enquiries have climbed rapidly, however this remains a very small part of the sector and the office environment still shows the highest vacancy rate of the three commercial property sectors being Retail, Industrial and Offices. It is however encouraging that smaller businesses are looking for space again.
The Industrial sector remains the best performer of the three in this quarter with the most consistent and stable capitalisation rates as well as the lowest vacancy factor. In certain nodes we have even noted a decline in the vacancy factor, although this may not be the best news for brokers. Our main concern is that the rental cycle has not met the development cost cycle, resulting in less new development stock entering the market. The cold reality is that developers do not see the risk to reward in greenfield industrial development at less than around a 10 percent plus yield, and rightly so considering the various markets offering yields above this. The cost to develop and achieve competitive yields typically means pioneer rentals of R85/square metre plus, in certain areas even higher. The general industrial tenant is showing resistance to this rate and as such are looking for existing buildings, or choosing to remain where they are, also rightly so considering the current economic situation. This ultimately leads to low level of existing stock and developers not adding stock, except in exceptional circumstances or very long term, national tenant projects. Where to from here? Typically, we would want to see the economy grow which in turn grows logistics, manufacturing and associated sectors, leading to a demand for more GLA to accommodate the increased trading. The increased demand in a low supply environment will drive the rental prices and encourage developers to resume greenfields projects. Until this happens, we should still see a shortage of industrial supply and a developer focus on existing site redevelopment projects.
Our exciting news is that we have officially opened our Cape Town offices. Based in Century City, our brokers are well positioned to assist landlords and sellers of commercial property in all nodes. The attraction of the Mother City is undeniable with 58 000 property transaction, worth R130 billion in 2021 registered and a growth of 28% in 10 years, or over 100 000 residents according to the City of Cape Towns’ latest census. City planning are frantically working to develop plans for this and further anticipated increases in population along with the economic and development growth that goes hand in hand with “semigration”. The City’s Urban Planning and Design Department have just released a detailed Spatial Trends Report, available on their website here, https://bit.ly/SpatialTrendsReport showing the current and future development plans. We see a bright future for our Cape Town branch and are ideally positioned to assist clients in this economic hub.
I hope that our next quarters commercial property trend report will have some positive news to share.
which includes our industrial and office market rental achieved/sqm
Sincerely
Craig McFadyen
Principal.
