Commercial & Industrial property in Cape Town has been traditionally well held by wealthy investors, many of these were life insurance houses such as Old Mutual and Sanlam as well as wealthy individuals and family investment trusts. Over the years this has changed with much of this property having being absorbed by listed property companies. There is still a substantial amount of industrial investment property in private hands. Cape Town property commercial property trades at 1% to 1.5% lower yield to properties in other regional centres.
The Commercial and industrial property market in Cape Town is constrained by the availability of developable land which leads to higher land prices and higher rentals for new buildings. Construction costs are also marginally higher in the Cape. The lack of supply of new buildings leads to higher rentals been achieved for older buildings. Older but very well located industrial areas such as Epping for example are seeing obsolete clothing and textile buildings being demolished to make way for modern high roofed warehousing buildings. The demand for warehousing exceeds the demand for manufacturing space.
A trend has developed over the last decade whereby Cape Town investors are readily investing in Gauteng commercial property as they are finding it difficult to grow their portfolios locally. Investing up country gives them a slightly higher yield and these markets are more liquid, having more modern buildings which are tenanted by strong nationals who find Gauteng the gateway to growing African growth markets.
With rising interest rates and listed property yields having increased, investors are looking for higher yields, however, in Cape Town’s established commercial and industrial investment nodes; there is still a shortage of quality investment property with solid tenancies. Properties with vacancies or potential vacancies or older properties with a degree of obsolescence are easier to come by but are riskier and hence problematic in funding.
Capitalisation rates in Cape Town vary widely and can be as low as 7% for small commercial sectional title units and between 7.5% to 9% for retail centres with between 9% and 11% for office and industrial buildings depending on age, condition , position and tenancies.
Cape Town’s CBD has seen residents growing from 1500 in 2010 to close to 6000 recently. This has changed the face of the CBD with major food retailers such as Pick n Pay and Spar having returned in recent years and the area has seen good growth of retail and tourism related businesses in the area. This trend has overflowed to neighbouring Woodstock, a logical expansion of Cape Town’s CBD which is undergoing transformation and rejuvenation into a trendy district and is seeing good returns for investors that read the trend and positioned themselves timeously. The Bus Rapid Transport system has had a similar effect to the Gautrain’s effect on Gauteng suburbs, with areas on these transport routes becoming sought after.
Cape Town is set to remain a solid investment destination with demand from many listed property companies being underweight in their ownership of properties in the region. Cape Town remains the favoured South African market for overseas property investors with strong currency.
Guy de la Porte has sold numerous commercial and industrial tenanted investments over the years and is a specialist in these type of sales.