The industrial property market in 2024 started on a robust trajectory, characterized by substantial nominal rental growth alongside sustained low vacancy rates. This trend positions industrial properties as the top-performing category among non-residential property types. Notably, nominal gross market rentals for industrial spaces of 500 m² surged by 4.8% in the first quarter of 2024 compared to the same period in 2023, outpacing the approximately 4% pace observed in 2023. Additionally, rentals saw a significant uptick of about 15% compared to pre-pandemic levels in 2019. Similarly, industrial spaces of 1,000 m² witnessed a comparable growth rate of 5.1% in the first quarter of 2024.
Despite these nominal gains, real rental values continued to decline due to elevated building-cost inflation. Regionally, major urban areas exhibited robust nominal rental growth rates ranging from 5% to 7%, accompanied by low vacancy rates, particularly in logistics properties. This strong performance was evident across various regions, including the Central Witwatersrand and Cape Town, where respondents noted intense competition among tenants for industrial space, signaling a tightening market.
The industrial property sector’s performance is closely intertwined with the manufacturing and retail sectors. While manufacturing production showed positive growth in early 2024 compared to the previous year, it still lagged behind pre-pandemic levels, indicating ongoing challenges. Factors such as high labor costs, electricity supply disruptions, and sluggish private consumption contribute to the sector’s subdued outlook. Similarly, the retail sector faced headwinds, with declining sales and dwindling confidence levels among retailers.
Key drivers of demand for industrial spaces include the shift towards modern warehouse facilities capable of accommodating advanced racking systems and the rapid growth of online retail sales, which necessitates efficient distribution networks. However, business confidence remains a critical factor influencing industrial vacancy rates, with lower confidence levels correlating with higher vacancy rates over time.
Despite the resilience of the industrial property market, there are concerns about the potential impact of weaker economic growth on vacancy rates in the short term. However, historical data suggest that industrial property vacancies remain below pre-pandemic levels, indicating the sector’s resilience amid challenging economic conditions.
While the industrial property market continues to exhibit strong nominal rental growth and low vacancy rates, ongoing challenges in the manufacturing and retail sectors, coupled with broader economic uncertainties, pose potential risks to future performance. Nonetheless, the sector remains buoyed by evolving consumer behavior and the demand for modern distribution infrastructure, underscoring its significance in the broader real estate landscape.
Courtesy: Rode & Associates
