Limited supply and low vacancies, particularly for warehouses linked to logistics, increased infrastructure investment, strategic location and good governance continue to drive demand, confidence and growth in Cape Town’s industrial property market.
“Cape Town’s well-run port, an international airport and well-maintained road networks all bode well for the logistics sector,” said John Jack, CEO of Galetti Corporate Real Estate.
The city has allocated R43bn for infrastructure upgrades over the next three years, underscoring its dedication to modernising and improving its essential systems and facilities.
As a result of functioning infrastructure, demand for commercial property, especially warehouse and logistics facilities, is high. Prices for these facilities in an area such as Paarden Eiland are high — one recently selling for a record-breaking R10,000/m2 at an auction, he said.
Jack said Cape Town offers investors a unique combination of robust rental and capital growth, along with rising property valuations, hence many businesses are relocating to the area or continue to invest in the locality.
Growthpoint Properties reported a 2.5% vacancy rate for the Western Cape during its investor update for the three months to the end of September. To increase its stock, its speculative industrial property units at the Chain Avenue and Arterial Road developments in Cape Town are due for completion in April-May 2024.
The company, which intends increasing its industrial property investments in the Western Cape, recorded positive rental renewal growth of 7.4% in Cape Town compared with -6.1% across the group portfolio.
“This is reflective of strong regional market dynamics along with high demand due to limited supply,” said Timothy Irvine, Growthpoint regional asset manager for the Western Cape.
Irvine said on the supply side, building costs and rising interest rates have resulted in new stock coming onto the market at higher benchmark rentals, and existing stock has followed these rentals.
According to the Rode Report for the third quarter of 2023, Cape Town recorded the strongest regional nominal rental growth of 6%. It has outperformed other localities over the past few years with rentals up 17% compared with pre-pandemic 2019 levels, and with low vacancies of 3.7%.
Inospace, which converts old industrial buildings into smaller logistics facilities for small and medium enterprises, said demand for industrial property and last-mile logistics in Cape Town is high due to limited existing supply and no vacant industrial sites in most areas.
CEO Rael Levitt said as a result, smaller logistics spaces within their portfolio achieve 11%-12% in rental growth compared with 6% for larger spaces, which recorded rental growth of 8% in 2022. “We expect rentals to keep rising due to limited supply,” he said.
The company, which recently acquired a property in Paarden Eiland, a prime industrial node outside Cape Town’s CBD, said market rents of about R90/m2 in this locality are nearing R100/m2 due to demand outstripping available supply.
Demand
Irvine said in Cape Town there is a growing propensity for people to hold stock “just in case” as opposed to “just in time”. Though shipping costs have reduced slightly, challenges to port efficiency are forcing businesses to maximise costs by ensuring they hold stock to create efficiencies in their business operations.
After the looting and riots in Durban in 2021, many companies are opening additional operations in Cape Town, and in some instances are moving operations to the city, said Irvine.
Factors such as perceived better service delivery and electricity curtailment agreements bode well for demand for the Cape Town industrial property market. Electricity curtailment is when property owners in an area enter into an agreement with the city that with each stage of load-shedding they will reduce consumption by an agreed percentage.
Irvine said a third party who is part of the agreement monitors this, and as a result power is never shed to an area because the users reduce consumption based on stages of load-shedding. Metros such as Johannesburg are taking a similar stance.
“We think the positive trend in Cape Town should continue, assuming no additional negative shifts in the macro environment,” said Irvine.
Levitt said logistics real estate has been insulated from local and global economic shocks due to growing demand for high-quality warehouses and distribution centres.
“The growth of e-commerce, and particularly smaller and mid-sized businesses entering the sector, drives demand, which results in the logistics sector outperforming other segments of the property market,” he said.
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