Industrial Market Analysis

Transcription

1 DEC Industrial Market Analysis Bi-Annual Western Cape & KwaZulu-Natal

2 Contents Bi-Annual Highlights 1 Summary 2 Climate 3 Supply 5 Featured Industrial Developments 7 Demand 8 Vacancies 9 Rental Rates 10 Prognosis 11 Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

3 Highlights Declining vacancies in the Western Cape contribute to rentals showing strong growth. Western Cape leads the way with strongest growth of stand value 8% and market rental 7%. Bi-Annual Durban shows reasonable growth, 3% on stand value and limited growth on rental value for existing stock. Western Cape economy has shown strong resilience to the recessionary conditions that we currently face, whilst Durban struggles to show real growth currently and going forward. Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

4 Summary Colliers International South Africa s April Industrial Market Analysis provides a brief overview of the key factors impacting this sector in the Western Cape and KwaZulu-Natal over the last six months, as well as the future market prognosis for the respective regions. Western Cape KwaZulu-Natal Bi-Annual Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

5 Macro-Economic Climate Inflation (past 6 months) Bi-Annual A major concern for the Industrial sector is the slow-down of trade and economic activity. Most major landlords are developing premises based on tenant demand rather than speculatively. With electricity supply constraints improving and access routes being provided by local government the potential for growth is improving but the market conditions still holds back significant improvement. Certain nodes are rapidly gaining popularity. Linbro Logistics Park, East Rand and Midrand remain firm favourites in an otherwise flat market. With the exception of a logistics hub in excess of m², the West Rand remains uninspiring. Economic Growth (GDP) 1.5% % The situation remains as with the previous report, except the growth outlook has been down graded to 1.5% for the year. The lack of reliable power supply, poor labour relations, limited and expensive transport and other economic infrastructure, rising production cost and increasing interventionist and unpredictable economic policies, will weigh heavily on business and consumer confidence and put a ceiling on growth in Already the Reserve Bank reduced short term potential growth to between 1,5% - 2% emphasising that electricity supply shortages were partly to blame. Inflation has eased slightly in the last 3 months from a high of 4.7% in July. This is a result of reduction in fuel cost, but Eskom tariffs and increase labour cost keeps pressure on rising inflation in the industrial sector. 4.6% Global Growth Global growth is expected to be between 3-4% in the next year. But the picture however still looks weak on the currency side for emerging markets. USA inflation is still below 2% this is an indication that there might be interest rate hikes in the near future. With the American economy looking stronger and China looking weak there will be a renewed interest by investors in traditional markets. Africa hopes to benefit from expansion by American and European investors and the takeover of SAB Miller is one such example. Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

6 Bi-Annual The Rand lost almost 12% against the US Dollar in Q3 and Q4 of, breaching the R14.00 level to reach lows last seen in Weakness was mainly in response to negative budget reporting, however the week in which the most severe fall in currency was recorded coincided with severe plummet of commodity prices. The Rand looked slightly more promising against the Euro, and gained marginally in the last quarter as a result of quantitative easing in the Euro area. In the medium term, trajectory of the Rand will mainly be dependent on global monetary policy events, the biggest being the timing of the normalisation of US interest rates. Confidence in our currency is also severely impacted by political instability on the continent and internally. Prime bank lending rates ended the year on 9.75%. The South African Reserve Bank (SARB) raised repurchase interest rates to 6.75% at last quarter close. It signalled however that a further raise may be coming soon forced by an increase in inflationary pressures. Global economic growth was slow and uneven in Q3 and Q4, with expansion continuing but at a fragile and uneven pace. Prospects in Europe and the US improved, the US momentum continues to grow. Developing countries continued to experience difficult conditions, hurt by weak global trade. In China, further signs of slower growth prompted the government to set a lower GDP growth target of 7% for, after maintaining 7.5% for the last three years. The International Monetary Fund (IMF) downgraded its global GDP growth forecast for the next two years, following similar moves by the World Bank and the Organisation for Economic Growth and Development (OECD). Industrial Market Analysis December Gauteng Colliers International South Africa The IMF expects global GDP growth of 3.5% to be recorded in and 3.7% in 2016 lower than the 3.6% and 4% it projected in October Developing economies are projected to grow by 4.3% (revised from 5%) in, and 4.7% (revised from 5.2%) in % (Forecasted) 6.9% (Actual) Q4 YEAR 7% (Forecasted) % Q1 (YEAR) Global GDP Growth Forecasts 3.5 % % 2 nd Semester 1 st Semester 2016

7 Bi-Annual Supply Western Cape The key nodes in the Western Cape industrial market over the last six months included Montague Park, Montague Gardens, Epping, Blackheath, Atlantic Hills and Rivergate. Airport Industria in particular was a node that saw high demand with low levels of supply. Overall, the market saw a gradual reduction in supply. Mid-sized A-Grade units in particular were scarce. In some instances, developers were caught off-guard, thereby creating a lag in new developments. Contributing to this was the lack of available land in suitable nodes at reasonable prices. Noteworthy completions to date over the last six months in the Western Cape included, but were not limited to: Wasteman (19,300m², Saxdowne Industrial Park) Montague Business Park (15,000m²) Form-Scaff (11,111m², Saxdowne Industrial Park) Range Industrial Park (9,220m², Blackheath) KwaZulu-Natal From a supply perspective, the key nodes in the KwaZulu-Natal industrial market over the last six months included Outer West (Westmead / New Germany) and Durban South (Mobeni / Jacobs / Prospecton). Outer West (Pinetown, Westmead and New Germany) have in particular been very active. High land costs within the newer industrial precincts continued to place pressure on asking rentals within those nodes and took renewed interest to the older established nodes which are deemed to offer better value. Interest also gained traction in the Cato Ridge / Hammersdale nodes, were large nationals proposed distribution centres. Noteworthy completions to date over the last six months in KwaZulu-Natal included, but were not limited to: Cargo Embassy (25,992m², The Cornubia Industrial and Business Estate) Trafford Park refurbishment (21,000m², Pinetown/Westmead) Blinds Mart (8,279m², The Cornubia Industrial and Business Estate) Digistics (7,110 m², The Cornubia Industrial and Business Estate) Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

8 Supply Bi-Annual Please refer to Fig 1 below for a selection of ongoing industrial projects, both planned and under construction, in the Western Cape. Aside from the Bridge City and Cornubia Industrial & Business Estate (CIBE) schemes which are covered in further detail below on the following page, there are no other significant, completed industrial developments for the last six months to report for the KwaZulu-Natal region. Fig 1. SELECTED INDUSTRIAL DEVELOPMENTS UNDER CONSTRUCTION AND PLANNED Development Status Completion Location Size Montague Business Park Planned 105,000m² due for completion Q4 Montague Park 120,000m² total Greenfields Industrial Park Under Construction Q4 Airport Industria 22,000m² Rivergate Industrial Park Planned Q3 Cape Town 20,000m² Montague Business Park Under Construction TBC Montague Park 19,840m² Montague Business Park Under Construction Q3 Montague Park 14,000m² *Fig 1 above shows a selection of the Western Cape industrial developments currently under construction and planned. This is a sample list, and not fully indicative of the market as a whole. Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

9 Featured Industrial Developments Bridge City Located within the Inanda, Ntuzuma and Kwamashu (INK) region, Bridge City is a 60 hectare development which started in 2008 (estimated completion is 2020), and it sees the conversion of an old, unsold industrial estate into a new Town Centre in a previously underdeveloped region. The scheme is a joint venture between Tongaat Hulette and ethekwini Municipality, and is based on a successful inter-model facility that includes the Bus Rapid Transport (BRT) and a Rail Station. Bridge City is very well located so as to facilitate convenient access. The entire development includes a mixed-use and residential Town Centre, as well as a 170,000m² Business Estate (a greenfields development), which is expected to attract public and private investment totaling R10 billion, with the Business Estate set to transform the surrounding communities of Inanda, Ntuzuma and KwaMashu (INK). The Business Estate is expected to attract a wide variety of investors and is ideal for distribution centres and logistics companies, building materials retailers, fast moving consumer goods wholesalers and retailers, as well as light industrial operations. With the rail line now in operation, there has been a significant increase in interest in Bridge City, with Tongaat Hulett having sold three sites in the soon-to-be-completed Estate over the past year. A number of new deals are also due to conclude in both the Town Centre and Business Estate over the next few months The Cornubia Industrial and Business Estate (CIBE) The Cornubia Industrial and Business Estate (CIBE) is situated in the northwest corner of Cornubia, adjacent to Ottawa, and is highly accessible from the N2, M41 and R102. CIBE comprises an 800,000m² light industrial platform in total. It is an environment-friendly and eco-sensitive industrial development, that will include warehousing, distribution and service oriented businesses and offices. To date approximately 720,000m² has been sold to entities with varied business interests (property funds, property developers, owner occupiers, etc.). Tongaat Hulett estimates that by Q3, they would have sold the remaining 80,000m². Over the past six months, the following key milestones have been achieved at CIBE: A combined bulk of approximately 40,474m² was taken up by end users with about 37,000m² of that taken by one large manufacturer Nine purchasers representing 156,207m² of the combined bulk commenced with construction Of the total bulk sold, 66,170 m² included multiple warehousing / mini factories with the balance split between refrigerated warehousing, warehousing and light manufacturing For the majority of the lots currently under construction, completion has been reached. Bi-Annual Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

10 Bi-Annual Demand Western Cape There was a pick-up in leasing activity in the Western Cape over the last six months, when compared to the same period a year ago. Newly vacant space was re-let reasonably quickly, and an increased level of demand is reported. Notable new deals and renewals in the Western Cape from the last six months include, but were not limited to: Value Logistics - Joostenbergvlakte - ±18,000m 2 New Deal Cipla Medpro Rivergate Park - 16,800m 2 New Deal Ellerines Distribution Centre Epping - ± 16,500m 2 New Deal Tiger Brands Range Industrial Park Blackheath - 9,000m 2 New Deal Goodenough Epping 2-7,983m 2 New Deal Range Industrial Park Blackheath - 4,400m 2 New Deal Golf Air Park Airport Industria 730m. and 729 m 2 - New Deals CTX Business Park Airport Industria 651m 2 New Deal Fourwinds Montague Gardens - 4,950m 2 Renewal KwaZulu-Natal Over the last six months in KwaZulu-Natal, there was an ongoing shortage of quality buildings in key nodes. A high level of demand was also seen for larger warehouse space, of between 2,000m² 10,000m². in particular. Notable new deals in KwaZulu-Natal from the last six months include, but are not limited to: 25 Prospecton Road Prospecton - 6,000m 2 New Deal 20 Rustic Close Briardene - 5,500m 2 New Deal Durban 5,000m 2 New Deal There were no significant renewals to report for KwaZulu-Natal. Industrial Industrial Market Analysis Market Analysis December November Western Gauteng Cape & KwaZulu-Natal Colliers International Colliers South International Africa South Africa

11 Vacancies These vacancy insights are based on Investment Property Databank s (IPD) most recent data report as published by the South African Property Owner s Association (SAPOA) in April. National Snapshot At the end of 2014 / early, the national industrial vacancy rate was recorded at 3.5%. While this is virtually unchanged from the 3.4% recorded 12 months prior, it is down significantly from the 6% level of the 2009 / 2010 period. Manufacturing-focused property saw significant increases in vacancies when compared to warehousing and standard units. Warehouse property however, driven by strong growth in consumer spending, had the lowest vacancy rate of the main industrial segments with a rate of 1.9% recorded. While the industrial sector vacancy rate continued to trend at six year lows there were some questions around the demand-side economic fundamentals underpinning the sector. Industrial manufacturing volumes remained constrained while the future growth potential of the sector also depends on improvements in efficiency measures like capacity utilisation and unit labour costs. Unit labour costs, driven by stagnant labour productivity, a largely unionised labour force and a weakening currency, remain a concern and could influence the investment decisions of multinational manufacturing Operations. Looking into industrial property by box size revealed that there was more space available in larger GLA properties. ln saying that, smaller industrial properties saw the highest increases in vacancy during over the last six months, and also saw their basic rental growth come under more pressure relative to larger sized premises. Western Cape When looking at the Western Cape on a nodal level so far as vacancies are concerned, Epping/Airport Industria/Langa had the highest recorded rate at 5.4%. The node with the lowest vacancy rate in the Western Cape was Kensington/Observatory with a rate of 0.1% recorded over the last six months. Milnerton/Montague Gardens also had a vacancy rate of below 1% for the same period. KwaZulu Natal When looking at KwaZulu-Natal on a nodal level so far as vacancies are concerned, Durban North had the highest recorded rate at 2.9%. The node with the lowest vacancy rate in KwaZulu-Natal was Umbilo/Moboeni with a rate of 0.3% recorded over the last six months. Overall, KwaZulu-Natal had the lowest vacancy rates nationally. NATIONAL INDUSTRIAL VACANCY RATE HIGHEST VACANT WESTERN CAPE NODES (Ottery / Landsdowne) LOWEST VACANT WESTERN CAPE NODES (Kensington / Observatory) HIGHEST VACANT KZN NODES (Northgate / Umgeni) LOWEST VACANT KZN NODE (Umgeni) Bi-Annual 4.0% 5.0% 0.1% 4.0% 1.3% Explanatory Description 0.0% Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

12 Bi-Annual Rental Rates National Snapshot The industrial sector's base rental continued to grow well above inflation - adding further proof to the notion that industrial demand outstripped supply. A base rental of 6.7% year on year for the period ending December 2014, resulted in a reasonable capital growth of 3.9%. Combining the capital growth with a strong income return of 9.9% led to the industrial sector outperforming both the retail & office sectors on a total return basis. The fact that the full base rental growth didn't filter through to capital growth meant that valuers took a slightly more bearish view of the sector's future earnings. All four of the main industrial segments recorded above inflation growth in base rental, with light manufacturing property recording an increase of 8.7% year-on-year despite an uptick in vacancy. This illustrated the importance of nodal selection in the current environment. lndustrial properties smaller than 2,500m² were the only ones to report negative base rental growth. It can be assumed that this segment was experiencing negative rent reversions, which was not surprising given the state of the economy and the fact that smaller tenants were more vulnerable to exchange rate movements. While industrial property with gross lettable area of larger than 10,000m² had the highest vacancy rate among the size segments, it also delivered the highest basic rental growth, which again underlined the importance of nodal selection. Western Cape & KwaZulu-Natal The majority of both the Western Cape and KwaZulu-Natal industrial nodes saw improvements in growth momentum over the last six months (Western Cape leads the way). Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

13 Bi-Annual Market Prognosis Looking ahead over the next six months, the Western Cape industrial market is likely to see increased demand for good quality space. For the moment there is a shortage of stock in the 800m² 1,500m² bracket in particular. This has been frustrating as the demand is there, and supply will only increase in early Power outages are a continued concern, with the manufacturing sector being worst affected. For those tenants looking to expand from old existing facilities in the short to medium term, the increase in rates, some of which have almost doubled, is likely to present a serious challenge. There continues to be a shortage of decent land in accessible, central nodes for sale. Land is few and far between, with the exception of the north. This poses a challenge for tenants and Landlords alike. The shift to outlying areas such as Montague Park, Rivergate, and Atlantic Hills will continue. The main reason for the move to the aforementioned nodes, is the perception that traffic congestion is less intensive in the East. The industrial areas adjacent to the N2 freeway have taken strain due to the unrest and protests, although Blackheath is likely to continue to do well despite this. A large tract of land in the Brackenfell area has been recently acquired by a leading property national fund in a joint venture, and the market is interested to see how industrial development performs at a later stage, once construction completes. So far as the the KwaZulu-Natal industrial market it concerned, it has struggled to achieve proper growth and will continue to do so in the coming months on the back of declining commodities prices and less imports. Demand for quality premises will continue to outstrip supply going forward, and asking rentals will be maintained but not much growth is expected. Property owners will continue to try and extract more value out of their existing properties and there will be further rejuvenation of existing older properties, in particular in the south and west of KwaZulu-Natal. The areas of Cato Ridge and Hammersdale will provide further opportunities for new owners and tenants who are able to take advantage of lower land prices, and who are able to operate on the N3 corridor. Sources: Business Day Colliers International South Africa GlobalRates.com Growthpoint Properties Intaprop Zenprop Property Holdings Investment Property Databank (IPD) Nedbank Redefine Properties Renico Construction (Pty) Ltd South African Property Owners Association (SAPOA) South African Reserve Bank (SARB) Tongaat Hulett Trading Economics Industrial Market Analysis December Western Cape & KwaZulu-Natal Colliers International South Africa

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