8HA PRIME INDUSTRIAL LAND SOLD TO INTERNATIONAL PROPERTY FUND
The new owner will develop an A-Grade Industrial Park further uplifting Blackheath Industria which has experienced a boom phase during the past 10 years.
For further information contact:
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The index released recently MSCI Inc. (NYSE: MSCI), showed the South African property investment sector delivered an ungeared total return of 11.1% in 2016.
This reflects a 190bp decline from 13.0% in 2015 and the lowest recorded total return since 2009.
Income return remained steady at 8.3%, while capital growth came in at 2.6% which was down from 4.4% in 2015. Capital growth was underpinned by an improved base rental growth of 6.2% – however, this was offset by negative yield impact.
Sponsored by Nedbank CIB, the report is based on asset level data collected from a sample of 1,450 properties with a total capital value of R296.6 billion at the end of December 2016. This represents approximately two thirds of professionally managed investment property in South Africa.
Phil Barttram, Executive Director, MSCI, comments: “The Index report, provides a unique perspective on the fundamental drivers of commercial real estate returns in South Africa. In stark contrast to socio-political volatility, investors have benefitted from stable incomes, founded on the sectors’ contractual income base and aggressive cost management. Even given the decline in total returns, the sector has once again proven its resilience by providing real returns in 2016.
At a sector level, industrial property was the top performing sector during the year with a total return of 13.6%, outperforming retail at 12.6%. The office sector continues to struggle on the back of subdued capital growth and was particularly hard hit in 2016 with a total return of 7.6%. At a property segment level, Inner City and decentralised offices counted among the worst performing segments for the year with total returns of 7.5% and 7.7% respectively.
The Index has outperformed the MSCI SA Equities Index and the JP Morgan bond index (7-10 year) over 1, 3, 5 & 10 year periods.
The top performing segments for the year were High Tech industrial property and Neighbourhood shopping centres which produced total returns of 18.1% and 20.3% respectively. Neighbourhood Centre returns should be seen in a longer term context, which suggests a return to trend growth in 2016 rather than continued outperformance.
Robin Lockhart-Ross, Managing Executive, Nedbank CIB Property Finance said, “The index results show that the performance of the South African property investment sector continues to hold up well despite the prevailing low GDP growth environment. Although, at 11.1%, the total return decreased from 13.0% in 2015, this is hardly surprising in that commercial property returns will over time closely track the general economy. Nedbank CIB, as lenders, look first for stability in income flows and then for sustainability in capital value, both of which this index demonstrates the SA investment property sector to have delivered consistently since inception of the index in 1995.”
There are opportunities for listed property companies in the industrial sector, especially in developing specialised warehousing and distribution centres, say experts. This is despite weak economic growth and a lack of demand for new manufacturing facilities in SA.
We are working in a very low growth environment in SA with a challenging labour market and there is not much demand for new factories and the like. Nevertheless, there is demand for logistics and warehousing, where owners and operators specialise. This is where we have expertise,” said Fortress Income Fund CEO Mark Stevens.
Last year, Fortress took over Capital Property Fund in the largest merger in the history of the South African listed property sector.
Through the deal, Fortress, which had a focus on retail shopping centres that served transport nodes, was able to enhance its industrial offering.
The takeover of Capital by Fortress created a megafund and has generated strong returns for Fortress’ investors already. Fortress’ assets more than doubled to R55bn after the merger.
The company has a directly held R24.28bn property portfolio, which has a 48.4% weighting towards logistics and industrial buildings.
Dividend payouts to Fortress B shareholders for the 12 months to June increased 95.28% to 137.50c per share. This was the highest growth declared by the company since listing in October 2009. Fortress has separately traded A and B shares, and the A shares receive 5% distribution growth each period.
Stevens said Fortress was large enough and had enough expertise to service large retail, construction and engineering tenants who had more complicated requirements than many smaller tenants.
“There are opportunities in industrial property but it helps if you are large enough and have enough expertise to serve tenants whose desires are often shaped by global trends.
“These include the use of more efficient materials, building buildings higher rather than longer and green aspects,” said Stevens.
But some experts argue offshore industrial opportunities could be more attractive than domestic ones.
“We are very positive on international industrial property,” said Garreth Elston, portfolio manager at Alternative Real Estate Capital Management.
“The sector has benefited markedly from the shift of consumers to online shopping and has seen robust demand,” Elston said.
“Locally, the market has struggled along with the economy, and our view is that without a return to growth the local industrial sector will lag somewhat. As long as economic growth remains constrained in SA, industrial developments will struggle to replace lost tenants, and tenants have the upper hand versus landlords at the moment,” Elston said.
“Globally, the industrial sector and more specifically big-box distribution centres have been doing incredibly well on the back of increased demand and little or no new supply,” said Grindrod Asset Management chief investment officer Ian Anderson.
A major driver of demand had been increased online retailing, with retailers now needing more warehousing.
“This is different in SA, where we have seen an increase in development activity and significantly less demand from online retailing,” Anderson said.
Another specialised industrial property owner that is performing relatively strongly is Equites Property Fund.
Since listing in June 2014, Equites’s share price has risen about 46% to close at R15 on Monday.
source: Business Day
This months emailer pays homage to the Epping of old and takes a look at the great warehousing that is currently available.
Give us a call if you want to book a property consultation!
A bit of History – Epping is an industrial area of Cape Town that is situated centrally on the N7 south of the N1, 15km’s east of Cape Town and north of the N2. Epping Industria was ﬁrst developed in the late 1940s. Industrial development was initially slow and in the early 1950s the circular Gunners Circle was used as a race track for cars. When industrial development picked up in the late 1950s the racing was stopped. The completion of the Athlone Power Station close by assisted in the proliferation of industrial businesses into the area in the mid 1960s
Epping Industria is the largest and most centrally situated industrial area in greater Cape Town.ts proximity to the major roadways and the availability of most forms of public transport make it an extremely sought after location for business.
Analyzing industrial property by box size reveals that there is currently more space available in middle of the range properties, particularly those sized 2,500sqm to 5,000sqm. Interestingly, the smallest and largest box size segments recorded the largest improvements in vacancy rate. This is perhaps surprising given the state of the economy and also the fact that smaller tenants may be more vulnerable to exchange rate movements. What it could potentially indicate is that most occupiers are downsizing their operations – requiring less space.
Cape Industrial Property was recently awarded the Project Groundbreaker award by Growthpoint Properties.
Project GroundBreaker is the Industrial Property Award that forms part of Project Millionaire, Growthpoint’s broker incentive program.
Cape Industrial Property Managed to win the Western Cape regional prize achieving the highest value for leases concluded over the past 12 months for warehouse space in the Growthpoint Industrial Property Sector.
Cape Industrial also managed a second place nationally.
The award seremony was held at the Barnyard Theatre in Rivonia.
Property groups are shifting to clean industrial properties focussed on light manufacturing, warehousing and distribution as harder manufacturing struggles, SA Commercial Prop News has learnt.
This is while more and more of SA’s economic output comes out of services and less out of hard line manufacturing.
The likes of SA’s biggest industrial property owner, Capital Property Fund, believe heavy manufacturing presents an unattractive business case.
“There is huge pressure on SA’s manufacturing sector. Capital sold out of heavy manufacturing properties some time ago and we don’t see signs that suggest we should go back to that space,” Executive Director at Capital Property Group, Andrew Teixeira says.
Capital’s industrial portfolio is centred on warehouses and distribution centres but it also includes light manufacturing factories.
“Heavy manufacturing is commodity based and can happen in many countries other than SA. You have to be making a niche product to do well with it in this country,” Mr Teixeira says.
The worst month for manufacturing for this year to date was July.
Manufacturing production fell 7.9% year on year in July, suffering its biggest contraction since October 2009, after barely increasing 0.2% in June, according to Statistics SA data.
The output was dented by a four-week strike by steel and engineering workers, largely seeing motor vehicle production cease or be scaled down at various plants.
Economists are not optimistic about how manufacturing will perform next year.
“Manufacturing will probably continue to struggle. In 2004 it accounted for 19% of the economy. In 2013 it accounted for 11%. Labour has priced goods and services to levels which are uncompetitive with SA’s emerging market peers. Manufacturing is in serious trouble and it does not have much of a future in SA,” Meganomics economist Colen Garrow says.
He is concerned that the euro zone, SA’s biggest export destination will re-enter recession.
“Russia’s attempts to re Balkanize the Ukraine will likely push the Euro zone close to recession again. These countries make up a constellation of 18 economies, most of which are destination markets for SA’s exports,” Garrow says.
Nevertheless, Teixeira says that Capital’s warehousing and distribution properties helped the group make double digit income growth in the six months to June.
Apart from the rand weakness benefit that flowed from the Capital’s investments in offshore funds, New Europe Property Investments and Rockcastle Global Real Estate Company, Capital’s better distribution growth was buoyed by the sale of non-core office buildings and lower vacancies in the industrial buildings.
Vacancies decreased from 5.1% in December to 4.2% in June.
Growthpoint Properties’ divisional director for its industrial portfolio, Engelbert Binedell says industrial property is often misunderstood as a part of property. Growthpoint has about R9.3bn worth of industrial properties which represents about 17% of the group’s domestic assets.
“Retail and offices are usually seen as being sexier. Still there are conditions developing to show that industrial property has an exciting future in SA,” Binedell says.
While Gauteng remains the hub for the industrial property class, upgrades to port infrastructure mean warehouses by the coast are becoming attractive.
Binedell says he expects Cape Town and Durban to face a surge in demand from logistics groups in the next few years.
“Infrastructure is being rolled out at our ports. I am always amazed when I stand on Umhlanga Ridge and see ships coming in.
“The daily number of ships docking has clearly increased this year. The industrial sector is healthy at Cape Town, Durban and Port Elizabeth and I think a massive pick up is on its way,” Binedell says.
CEO Andrea Taverna-Turisan listed Equites, an industry focussed fund this year.
He says in about five years, online buying will boom in SA and this will create large demand for warehousing.
“Companies are going to need to store not only fast-moving consumer goods but other goods. SA may have a shopping mall culture but accessibility to online shopping will see people buying goods off the Internet,” he says.
He also says that industrial property is gaining a lot of interest from the listed property funds when it used to be more popular with many unlisted funds.
“When we listed, industrial property just was not that popular. It is becoming popular now with not only unlisted funds but listed Reits (Real Estate Investment Trusts) trying to get their hands on industrial assets. It seems the improved infrastructure by Durban’s ports and the increasing business activity in Cape Town; are among the key drivers,” he says.
Stanlib’s head of listed property funds, Keillen Ndlovu says industrial property has strong fundamentals in SA, which is part of the reason why his funds have stakes in the likes of Capital Property Fund and SA Corporate Real Estate Fund.
These funds’ distribution and warehousing assets are attractive, according to Ndlovu
“Yes, we like the industrial space. The fundamentals are good. Rental growth has been good with 7% growth in the sector in 2013.
“Vacancies are low across all types of industrial property. In fact, than industrial sector has lower vacancies than the retail and office sectors,” he says.
Ndlvou highlights the improving qualities of coastal industrial properties, especially those in KwaZulu Natal.
“KwaZulu Natal has generally been a strong node and commands higher average rents than other regions. The fact there are plans to expand the Durban port are a potential big positive going forward,” he says.
According to a recent report by the South African Property Owners’ Association, Cape Town area has lower vacancies than all other industrial regions do.
Original Article – SA Commercial Property News