The Resilience of the Industrial Property Sector
Category Durban: Newsletter News
Industrial property in 2019 can be observed as being 'stable and operational' with hurdles such as load shedding, elections, 'bad news' politicians, and the volatility of the Rand having little to no effect on the industrial property sector.
Adding to this, Bizcommunity reported in April this year that the industrial property's top performance is comparative to other sectors and is likely to continue going forward. In addition, the poor performance of the listed property sector during 2018 was thankfully not a function of a bad industrial property market.
We've done some investigations to uncover why this is the case.
What makes this sector exceptionally strong and resilient?
The first thing to note, is that whereas the retail property market is strongly linked to the consumer, industrial and warehouse space is linked more to the broad economy with a strong link to the manufacturing sector. One would think that whatever happens within the socio-economic environment of the country would affect the industrial property market simultaneously, however the opposite was monitored.
While a strong retail sector certainly assists in driving industrial development through the need for warehouse space as well as more manufacturing (industrial) space, it's not the only contributor to development and growth in this sector:
Imports and Exports
The growth in the import and export industry has created a demand from the industrial property sector, which helps add to its sustainability. It has been noted by property researchers that there is a clear correlation between the trend of wholesale and retail trade sales in comparison to imports. This means that the more the imports and exports the more the need for storage, logistics and warehousing services in South Africa.
Construction
Industrial production (and therefore the need for industrial real estate) is driven by construction demand and other forms of fixed investment. Last year, Stats SA revealed that residential property slowed down with an uptake on construction in Q4 of 2018. Despite the country's slump into technical recession, activity in the construction sector has increased by 2.3%, mainly due to the rise of non-residential buildings.
According to Portfolio Property Investments, the strong demand for industrial and warehouse space is sure to continue with support from a very strong gross domestic fixed investment demand as well as strong construction output.
The Fourth Industrial Revolution
The introduction of the fourth industrial revolution, can, in short be characterised as a fusion of technologies that is blurring the lines between the physical, digital and biological spheres. This has meant that tertiary sectors - which are responsible for delivery products and services to other industries - have dominated the landscape.
A changing environment, a weak economy, and the need to adapt to the transformation in demand, are all factors that have forced property developers to showcase their agility - and quite successfully at that. Because of the increasing and always present need for warehousing, manufacturing, factories and machinery, industrial property has been able to remain resilient against the economic downturn.
The JLL latest report on Trade Trends observes that historically we saw industrial buildings offering larger office components to cater to the higher employee numbers, whereas today, industrial warehousing and accommodation offers more space for machinery and technology as opposed to labour. We can then observe that there is a gradual shift occurring within the industrial development demand and specifications.
Trend forecast and where industrial property is set to go
Commercial and industrial zoned and serviced land has seen no notable reduction in prices but rather maintained an easy and steady trend. This can be seen on expensive property in Cape Town and prime areas of Johannesburg. This trend is set to remain the same especially for the commercial and industrial investment properties with good leases in place, that assist in sustaining their market value.
Another expansion that is predicted for the industrial development sector is the conversion of agricultural land into serviced land. While this may take many years to materialise, the risk of holding vast agricultural land may even increase the price of zoned land in the future, this according to John Whall, CEO of Heartwood Properties.
Why you should invest in industrial property?
While we all need to keep an eye on the economy and constantly reevaluate our investments, the outlook for industrial and commercial property is set to remain relatively stable and secure for the next three years. On the whole, real estate in South Africa is a preferred asset class for institutional and individual investors alike.
The South African socio-economic environment could be described as one of turmoil at the moment, however businesses are learning how to effectively deal with challenges and hindrances that are by-products of this turmoil. As a result, existing industrial property owners are reluctant to sell, mainly due to the observed trend thus far and the forecast for the sector.
In addition, based on popular research, for the past few years, the industrial property sector has outperformed the office, retail and leisure property sectors and will continue to perform reasonably well into the foreseeable future.
If you would like more information on our API industrial properties and how you can get involved, contact one of our passionate and knowledgeable brokers.
Author: API Property Group
