The decision between buying an existing industrial property or having one custom-developed involves several financial, logistical, and material factors. Each option has its pros and cons based on the unique requirements of your operation. Let’s explore the costs and considerations associated with both:
1. Buying an Existing Industrial Property:
Advantages:
- Immediate Availability: Existing properties can be acquired and used relatively quickly compared to the time it takes to develop a property from scratch. Most developments need a lead time of 10 to 12 months to develop, possible longer depending on zoning and availability of services, approvals, geo-tech reports etc.
- Established Infrastructure: Most existing industrial properties have essential infrastructure in place, including power, water supply, and security. The availability of power is an especially important consideration currently.
- Known Costs: The purchase price and any renovations/customisations can be calculated fairly quickly and accurately.
Cost Considerations:
- Purchase Price: This depends on location, size, infrastructure quality, and market conditions. Prime locations like Johannesburg, Cape Town, and Durban generally have higher property values and the availability of properties is putting constant pressure on pricing. On the other hand interest rates have increased and this increases property yields accordingly.
- Renovations/Upgrades: Existing warehouses and factories might require modifications to suit specific needs. The cost of these renovations can vary widely based on the extent of changes.
- Maintenance: Older properties have experienced wear and tear, leading to higher maintenance costs in the long run.
2. Having an Industrial Property Developed:
Advantages:
- Customization: Developing a property ensures that every aspect, from layout to infrastructure, meets specific business requirements.
- Modern Standards: New constructions can integrate the latest technologies, sustainability practices, and safety standards.
Cost Considerations:
- Land Acquisition: The cost of land varies by region, proximity to transportation hubs, and the overall economic vitality of the area. Teh scarcity of prime industrial land currently means high land costs generally.
- Development Costs: This includes construction, permits, architectural designs and installation of services. Custom requirements, such as specialized facilities or high-tech installations, can increase costs. FM2 flooring, concrete hardstands, height of warehouse, type and number of roller shutter doors all affect the development cost.
- Time and Project Delays: Development projects can face delays, leading to increased costs. The longer the development time, the longer it takes to generate a return on the investment and increased downtime.
- Financing: Development bonds can carry higher interest rates than normal bonds for existing properties.
- Availability of sites: Developers have bought out extensive tracts of land in high demand industrial areas and not all of them offer purchase options, there is however potential for joint ventures, lease to own or tenant driven developments which also carry certain advantages.
Which is More Cost-Effective? That depends on the needs of your business and operation:
- Short-term View: From a purely practical and immediate financial point of view, buying an existing property might be more cost-effective, especially if it meets most of the your business’s requirements and requires minimal renovation/customisation.
- Long-term View: If you’re considering the long-term benefits of customization, energy efficiency, and specific infrastructure needs, developing a property might be more beneficial despite the higher initial costs. Over time, the benefits of a tailored, modern, and efficient space might outweigh the upfront investment.
In both cases, it’s essential to engage with real estate professionals like ourselves who can help advise as to whether or not the type of property your business needs can be sourced and is generally readily available, or whether it may be worth considering a new development. There are options as to how the developmenty can be funded and we work with a variety of world class developers.
Contact us today for your all your industrial property requirements.
