Earlier this week I was invited to a property investment presentation by Professor Francois Viruly, which was hosted by Business Partners. This was one of the best property economics presentations that I have attended in many years.
Whilst my focus is on industrial property in Cape Town, Professor Viruly gave an excellent insight into the different sectors of the market. Emphasis was put on mass urbanisation as a major driver, shaping the property market into the future. Professor Viruly made an important point, in that we tend to look at the market in “circles” around major nodes whereas with densification and transport upgrades such as the Gautrain, we need to take a more “linear” view to nodes along transport corridors.
For the last few years, I have had difficulty trying to estimate where we are (what time it is) on the property clock face. We have emerged out of the world’s worst recession in living memory, we have had the 2010 world cup help our market and we have had contagion in Europe, not to forget our own more recent problems such as labour unrest on the mines and a widening current account deficit. We have had slow demand, high vacancies but strong investor demand. Our stock market has been robust.
On the ground, I am experiencing vacancies and rentals stabilising. Demand for investment property is strong with a shortage of stock. Investors are buying quality properties even if they have short leases or are vacant as they are positioning themselves for a stronger letting market.
Professor Viruly suggested that we are in recovery (i.e. past 6 o’clock) and are sitting around 7-8 o’clock for the industrial property market. From what I am experiencing on the ground, I would agree with this. Interestingly enough, he suggested that the peak of the market, i.e. 12 O’clock could be around 2017.
Another interesting point the professor made was that vacancy rates need to go well below 8% for rentals to start to rise. It is my opinion that Industrial property vacancies in Cape Town are below this now, in many industrial areas in Cape Town particularly with regard to larger warehouse facilities. The outlook for industrial vacancies and rentals is looking better than it has for quite a while. Again, we have to be cautious as we still have many challenges in South Africa and the World economy.
Guy de la Porte is an Independent Industrial Property Specialist in Cape Town, South Africa