Rode’s fourth-quarter 2023 survey provided a comprehensive overview of the South African industrial property market, highlighting its resilience amidst economic challenges and its pivotal role among non-residential property types. With low vacancy rates and satisfactory rental growth, the industrial sector emerges as a stronghold in the country’s real estate landscape.

The survey reveals a positive trend in nominal gross market rentals for industrial spaces, particularly those spanning 500 m2. These rentals experienced a commendable 4% growth in the fourth quarter of 2023, maintaining consistency with the previous quarter. Impressively, by the end of 2023, rentals had surged by approximately 15% compared to pre-pandemic levels in 2019, demonstrating robust growth momentum. Notably, rentals for larger industrial spaces of 1,000 m2 grew even faster at 5% in 2023, with Cape Town leading regional growth dynamics.

Despite these encouraging trends, the real rental rates continue to decline due to the impact of elevated building-cost inflation, hovering around 10%. This divergence between nominal and real rental growth poses a challenge for stakeholders, impacting their bottom line amidst economic uncertainties. However, despite the downward pressure on real rentals, the industrial property market remains an attractive investment opportunity.

Several factors contribute to the industrial sector’s resilience and attractiveness. Firstly, the survey highlights the largely non-speculative nature of industrial developments, which helps maintain stability in the market. Additionally, the growing demand for modern warehouse and distribution spaces, driven by technological advancements and the rise of e-commerce, fuels rental growth in the sector.

The performance of the manufacturing and retail sectors also significantly influences the industrial property market. Manufacturing production has stagnated, impacted by slower global and South African economic growth, as well as power cuts. Despite efforts to shield against electricity supply disruptions, structural problems such as high labor costs continue to hinder the sector’s growth potential. Similarly, retail sales face pressure from rising living costs and interest rates, although expectations of lower rates in 2024 offer some optimism for the sector’s outlook.

Business confidence levels serve as a crucial indicator of industrial vacancy rates, with a noted lag of five to six quarters between confidence and vacancies. While vacancy rates have trended downwards since the peak of the COVID-19 pandemic, recent improvements are tempered by concerns over weaker economic growth. Nevertheless, vacancies remain lower than pre-pandemic levels, underscoring the industrial sector’s resilience.

Looking ahead, stakeholders in the industrial property market must navigate challenges such as building-cost inflation and economic uncertainties while capitalizing on opportunities presented by technological advancements and evolving consumer behaviors. Collaborative efforts between industry players, government entities, and investors will be essential in sustaining the sector’s momentum and ensuring its continued growth and resilience in the face of evolving market dynamics.