Industrial Market Analysis

Transcription

1 October 2014 Gauteng Accelerating success. Industrial Market Analysis

2 Contents Highlights 1 Summary 2 Statistics 2 Climate 3 Supply 4 Demand 8 Vacancies 9 Prognosis 11 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

3 Report Highlights The Gauteng industrial market in 2014 to date was characterised by a buoyant increase in demand levels, which has been both out of cycle and out of character. Supply levels have been constrained, which underpinned the low vacancy rate and rental growth. Overall the economy has remained under pressure, with the Rand weakening significantly, a further core interest rate hike being implemented, a deterioration in domestic expenditure; and the country s economic growth forecast being downgraded once again. 1 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

4 Report Summary Industrial property nationally has been the top performing sector for the past eighteen months. Colliers International South Africa s October 2014 Industrial Market Analysis provides a brief overview of the key factors impacting this sector in Gauteng for the period January to October 2014, as well as future prognosis for the market. The Analysis focuses specifically on the Johannesburg and Tshwane areas within Gauteng. Summary Statistics OCTOBER OCTOBER OCTOBER Gauteng OCTOBER OCTOBER OCTOBER Y-O-Y Change 0 Y-O-Y Change 0 Y-O-Y Change 20 bps 6 month outlook 6 month outlook 6 month outlook Prime Gross Rent (R/m²) Prime Yield (%) Overall Vacancies (%) 2 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

5 Macro-Economic Climate At the end of September 2014, South Africa s core inflation rate had come down from a Q2 rate of 6.6% - the highest rate seen in almost five years to 5.8%. The South African Reserve Bank (SARB) has confirmed that monetary policy remains accommodative, and will continue to be supportive of the domestic economy. Q3 has also seen domestic expenditure further deteriorate, particularly private sector fixed capital formation, and together with continued moderation in household consumption expenditure, is indicative of the lack of demand pressures in the economy. INFLATION 5.8% Q2 Q3 From an economic growth perspective, South Africa s forecast continues to be disappointing, following the strikes that plagued the first half of the year. South Africa has once again been downgraded in Q3 by both the South African Reserve Bank (SARB) and the International Monetary Fund (IMF). SARB s Monetary Policy Committee (MPC) remains mindful however of the anaemic state of the domestic economy, rising unemployment, and the downside risk to its growth forecast. The MPC left the repo rate unchanged at 5.75% as of the end of September, highlighting that the combination of stubborn inflation and a sluggish growth outlook continues to pose a difficult dilemma for monetary policy. The IMF predicted growth to be at 1.4%, while SARB put it at 1.5%. Growth was originally forecast to be approximately 2.3%. Despite this downgrade, there is still a mildly positive long-term outlook among the larger South African banks, who predict future long-term growth to range between 2.5% - 3%. REPO RATE 5.75% Q Q GDP LONG-TERM GROWTH 2.5 % -3 % The Rand weakened significantly in the last quarter, and remains vulnerable to changes in global investor sentiment. The weakening is evidence of continued strain being seen in mining and manufacturing on the back of prolonged strikes. The next hurdle for our currency will probably stem from renewed nerves in global equity markets, or from actual increases in interest rates in the US and other developed economies. RAND VALUE Q2 Q3 From a global economic perspective, there is renewed concern across the board, especially for a very weak Europe that looks likely to dip back into recession. Q3 also saw China s economic activity reflect a loss of growth momentum. The United States has very much been the exception, and is on track to grow by more than 3% in 2015, with employment growth as well as wealth levels roaring in the country to pre-2008 levels. US ECONOMY % 3 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

6 Supply The main industrial locations in Gauteng include primarily Midrand, the East Rand (Isando, Jet Park, Germiston, Plumbago, Pomona and Route 21 towards Tshwane), and to a lesser extent, Cosmos City and Lanseria. Waterfall Business Estate is the largest long-term industrial construction project in Gauteng, with a total of 144,112m 2 of light industrial space completed and under construction on the site. Waltloo Industrial Park and Silverton in Tshwane have also seen significant redevelopment this year. Noteworthy completions to date in 2014 in Gauteng included, but were not limited to: MB Technologies Building (30,000m 2, Waterfall Business Estate) Westcon (8,074m 2, Waterfall Business Estate) Angel Shack Building (4,500m 2, Waterfall Business Estate) L Oreal (±15,000m 2, Midrand) N1 Business Park (± 12,500m 2, Midrand) N1 Business Park (± 10,600m 2, Midrand) Raceway Industrial Park (± 40,800m 2, Germiston) 190 Barbara Road (14,700m 2, Isando) Twenty One Industrial Park (100,000m 2, Olifantsfontein) Touchdown (± 10,000m 2, East Rand) Hughes Industrial Park (± 10,000m 2, East Rand) 608 Lanseria (1,800m 2 ) 609 Lanseria (1,710m 2 ) 659 Lanseria (1,446m 2 ) 5 Mostyn Park (7,644m 2 ) 24 Mostyn Park (10,283m 2 ) 30 Kliprivier (1,285m 2 ) 39 Kliprivier (2,100m 2 ) 214 Cosmo City (2,200m 2 ) 4886 Weltevreden Park (2,982m 2 ) In addition to the aforementioned, a recent industrial land acquisition in Samrand by Growthpoint Properties, is also very significant. The property fund have purchased the fully-serviced 43 hectare site (equal in size to 86 rugby fields) in Samrand, and intend to develop it with Cavaleros Group. The tract of land has an ultimate development potential of R2 billion, and is Growthpoint s largest industrial land transaction to date. Various ongoing redevelopment projects on the East Rand, where developers are either reconverting existing space into more attractive prospects, or demolishing existing old industrial stock in a desirable location, and rebuilding, are also worth noting. Please refer to the graphs on the following pages for a selection of ongoing industrial construction and planned projects across Gauteng. 4 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

7 DEVELOPMENT SIZE (m ) Supply Waterfall Business Park EXPECTED COMPLETION - Q Waterfall Business Park EXPECTED COMPLETION - Q ,784 m 2 SERVEST 11,050 m 2 COVIDIEN ± 20,000 m 2 CUMMINS 4,674 m 2 DRÄGER 47,400 m 2 GREEN CROSS 105,300 m 2 UNILEVER 40,000 m 2 LASER TRANSPORT GROUP 73,000 m 2 GRANDMARK INTERNATIONAL 23,200 m 2 TWENTY ONE INDUSTRIAL PARK 148,100 m 2 GOSFORTH BUSINESS PARK 23,000 m 2 WALTLOO DISTRIBUTION Waterfall Business Park EXPECTED COMPLETION - Q Waterfall Business Park EXPECTED COMPLETION - Q Lords View Industrial Park EXPECTED COMPLETION - Q Lords View Industrial Park EXPECTED COMPLETION - Q Lords View Industrial Park EXPECTED COMPLETION - Q Lords View Industrial Park EXPECTED COMPLETION Olifantsfontein EXPECTED COMPLETION - Q East Rand EXPECTED COMPLETION Tshwane EXPECTED COMPLETION - Q Fig 1 above shows a selection of the Gauteng industrial developments currently under construction, planned and completed. This is a sample list, and not fully indicative of the market as a whole. 5 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

8 DEVELOPMENT SIZE (m ) Supply cont Longlakle, Linbro EXPECTED COMPLETION - Q Longlakle, Linbro EXPECTED COMPLETION - Q ,000 m 2 1ST AVENUE 28,000 m 2 FRANKENWALD 20,000 m 2 MAPLE ROAD EXT 155 8,000 m 2 N1 BUSINESS PARK 6,500 m 2 MEADOWBROOK BUSINESS ESTATE 5,500 m 2 WILBART EXTENSION 9,879 m 2 ERF 210, KIMBULT INDUSTRAIL PARK 10,800 m 2 KANUBA ENG CC 9,700 m 2 MULTI SURGE 13,100 m 2 RIO RIDGE 3,100 m 2 NOVOPAK 20,600 m 2 FERWAR Pomona EXPECTED COMPLETION - Q Midrand EXPECTED COMPLETION - Q Randburg EXPECTED COMPLETION - Q Germiston EXPECTED COMPLETION - Q Honeydew EXPECTED COMPLETION - Q PLANNED AND EXPECTED START-ON-SITE - TBC Klipriver Business Park Klipriver Business Park Klipriver Business Park Klipriver Business Park Klipriver Business Park Fig 1 above shows a selection of the Gauteng industrial developments currently under construction, planned and completed. This is a sample list, and not fully indicative of the market as a whole. 6 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

9 Supply cont. PLANNED AND EXPECTED START-ON-SITE AS BELOW East Rand Q Midrand Q City Deep TBC Klipriver Business Park EXPECTED COMPLETION - Q Germiston EXPECTED COMPLETION - Q Roodeport EXPECTED COMPLETION - Q ,000 m 2 POMONA 12,000 m 2 N1 BUSINESS PARK 55,000 m 2 TRADEPORT 2,500 m 2 MIDRAND OFF K101 8,500 m 2 ELANDSFONTEIN 8,500 m 2 LASER PARK 1,964 m LANSERIA 11,120 m LANSERIA 4,500 m 2 ERF 259 2,100 m 2 BOLTONIA 32,500 m 2 NEW HOPE GROUP Lanseria EXPECTED COMPLETION - Q Lanseria EXPECTED COMPLETION - Q Northriding EXPECTED COMPLETION - Q Krugersdorp EXPECTED COMPLETION - Q Klipriver Business Park EXPECTED COMPLETION - TBC Fig 1 above shows a selection of the Gauteng industrial developments currently under construction, planned and completed. This is a sample list, and not fully indicative of the market as a whole. 7 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

10 Demand To date 2014 has seen a buoyant industrial market. This trend is out of cycle, showing an out of character increase in demand in the Gauteng industrial sector. It is unclear as to what caused the increase, but it s thought that a contributing factor may have been larger companies making previously delayed relocation and/or expansion decisions. Demand in the northern node grew largely as a result of the construction of Waterfall Business Estate in Midrand. The East Rand has also seen demand grow as a result of industrial redevelopments in the area. Both the north and east nodes have also experienced increased levels of demand, in particular for small and big box spaces. NORTHERN GAUTENG DEMAND Large construction projects in Klipriver and Wadeville have resulted in growth in demand in the south of Gauteng, while the west has remained fairly quiet. The Lanseria area north-west of Johannesburg is booming, as is Mostyn Park. There has also been an increased demand for volumetric industrial space as opposed to more traditional square meterage, as interested parties seek to achieve greater efficiencies and reduced fixed overhead costs. Notable new deals and renewals in Gauteng in 2014 to date include, but are not limited to: RTT Development Twenty One Industrial Park, Olifantsfontein 12,000 m 2 New Deal Mandy Rose Development - Reuven - 23,000m 2 - Dual New Deal & Renewal Lower Jupiter Road - Germiston - 10,500m 2 - New Deal Tedelex Building - Reuven - 15,000m 2 - New Deal 190 Barbara Road - Isando - 14,700m 2 - New Deal Duropress Building - Alrode - 13,500m 2 - New Deal 24 Mostyn Park - Randburg - 10,283m 2 - New Deal 5 Mostyn Park - Randburg - 7,644m 2 - New Deal Meadowdale - Germiston - 19,000m 2 - Renewal 21 Wrench Road - Johannesburg - 17,681m 2 - Renewal Le Sel - Johannesburg - 11,242m 2 - Renewal The average deal size for the Gauteng area to date in 2014 has been approximately 6,000m 2-7,500m 2. 8 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

11 Vacancies These vacancy insights are based on the Investment Property Databank s (IPD) most recent data report. The report is compiled using an intelligence sample of over 400 properties, covering more than 4 million square metres (62% coverage) of the national industrial property market. From a national perspective, the leading concentration of institutional holdings Gross Lettable Area (GLA) was in Gauteng (60%), KwaZulu-Natal (21%) and the Western Cape (17%). Mpumalanga and the Eastern Cape comprised the small remainder. Light Manufacturing led the vacancies nationally at 3%, followed by Standard Units (2.9%), High-Tech Industrials (2.2%) and Warehousing (2.1%). So far as industrial segment performance was concerned, Light Manufacturing Low Grade Units outperformed the other segments, with 15% total returns being achieved. In Gauteng, industrial vacancies have been recorded at 3.1% for 2014 to date. The best performing industrial nodes from a total returns perspective (%) in Gauteng, were Kelvin and Eastgate (+9.2%), and the worst performing node was Strijdom Park (+4.0%). Overall, Gauteng experienced total returns of 9.2%. GLA IN GAUTENG LIGHT MANUFACTURING GAUTENG VACANCIES 60% 3% 3.1% The recent macro-economic fundamentals, in particular the prolonged strikes, were not conducive to major industrial expansion, with 20% less industrial floor area planned to date in 2014, than during the pre-2008 boom. Manufacturing production was also seen to be 20% off the highs of 2007/ Industrial Market Analysis Q Gauteng Colliers International South Africa

12 Rental Rates Due to the quality and efficiency of the type of space, premium industrial space has seen a spike in rental this year. Please refer to the graphics below for the average gross rental rate bands for new, refurbished and standard industrial space. NEW 2014 R55 - R65/m 2 REFURBISHED 2014 R48 - R55/m 2 STANDARD 2014 R40 - R45/m 2 10 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

13 Market Prognosis The Gauteng industrial market is in a very good space currently, but the national industrial market overall is displaying fragile demand. The demand side of the economy will need to improve to drive manufacturing production, and this improvement in production will lead to expansion and an increase in capacity utilisation. strikes that took place in recent months, the risk of future strikes occurring would be highly detrimental to the efficient, timeous delivery of goods. This would place significant strain on smaller industrial operators who would be forced to either put their business operations on hold, or in some instances, close permanently. Larger logistics users in Gauteng will continue to understand the value of efficient, well-laid out industrial facilities, compared to the traditional stock, therefore demand for prime, volumetric space is likely to continue to increase. If the e-tolling system remains in place, location will remain a highly sensitive, business-critical issue for the industrial market in Gauteng, as it directly affects costs to the end user. As was experienced with the National Union of Metalworkers (NUMSA) Report Sources: Atterbury Property Holdings Capital Property Fund Colliers International Currie Group Growthpoint Properties Investment Property Databank (IPD) Lords Trust Developers M&T Development Nedbank Redefine Properties Renico Construction (Pty) Ltd Statistics South Africa The South African Reserve Bank The World Bank Trading Economics 11 Industrial Market Analysis October 2014 Gauteng Colliers International South Africa

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