Tenanted Industrial Property yield

The supply of Tenanted industrial investment properties  in  Cape Town is in short supply at the moment. If an industrial  property in one of Cape Town’s popular industrial areas such as Airport Industria, Epping, Montague Gardens or Paarden Eiland comes on the market, it is sold very quickly, provided it has reasonable leases, and is priced correctly. Capitalization rates in areas such as Montague Gardens have edged below 9% for prime properties.

With interest rates predicted to be heading sideways or edging lower, it is unlikely the situation will change in the short term. Industrial properties that have large vacancies looming , come to the market more often and investors that have the ability to fund these properties and are willing to take risk,  are often rewarded with good yields.

On the leasing side, there is a shortage of large, modern industrial properties and tenants or owner occupiers wanting double volume distribution centres with raised loading and good yard space have to look  to “Greenfields” developments to satisfy their needs. Cape Town’s industrial nodes which are popular and still have zoned vacant land are  Airport City, Montague Park and Brackengate.

It is an interesting dynamic that although economic times have been, tough,  Cape Town has relatively low industrial property vacancy rates. When the economy starts to pick up,  the available space will  be absorbed quickly and rentals will start to rise. Industrial rentals have moved sideways for a couple of years now and developers have had a tough time holding onto land, however,  those holding strategic, large industrial land parcels will be rewarded eventually and will  secure national tenants on long leases for modern warehouse buildings and distribution centres.