Cape Town Industrial Market Profile - November 2017

Overview Despite the continued contractions in spending on consumables throughout , a greater focus on imports and a slowing down of certain manufacturing sectors, has experienced exceptional growth in the industrial property market over the last three years. This growth can be attributed to several factors: the rise of the logistics sector, the position of Cape Town as an African industrial powerhouse, and the ever-increasing requirements of companies based here, both national and international.

Analysis of the industrial market

Although Cape Town’s industrial vacancy rates have been decreasing since 2010, this trend has become much more evident over the last three years. During this period, Cape Town’s most sought-after industrial nodes were Paarden Eiland, Montague Gardens, Killarney Gardens, Epping, Airport Industria, Maitland and , which have all shown an exceptional decrease in vacancies, at a rate of 28% (2015-2016).

A lack of warehousing and industrial units has sparked several large-scale industrial expansion zones, opening new opportunities for small to large scale tenants, such as Rivergate, Atlantic Hills, Brackengate and Richmond Park. Similarly, it has also lead to the regeneration of historically run-down industrial nodes which have since been given new life, including Maitland, Ndabeni and Parow Industria.

The lack of stock has in turn greatly driven up the rental prices, with rental values increasing by approximately 8 – 10% year on year. This has also driven the move of several clients to areas on the outer reaches of the Cape Town catchment area, where rentals are more affordable for small-to-medium sized companies and start-ups. The knock-on effect is a large-scale expansion of industrial opportunities in the further reaches of the Northern Suburbs such as , Stickland, KuilsRiver and Blackheath, enabling these areas to slowly turn from quiet and neglected precincts to bustling industrial nodes. In contrast, the traditionally popular industrial nodes, which have grown to capacity, have seen rentals reach unprecedented levels.

Due to the great demand for units of various sizes, particularly from 500msq to 1500msq, we have seen the roll-out of several medium-to-large scale developments catering to this market. Similarly, on the upper end of the size scale, the demand for large, open plan mega warehouses of 5000 – 20 000msq has grown to levels never before seen in Cape Town. These are driven by an array of companies such as those specializing in bulk storage (which are often imported goods), logistics companies as well as consolidation measures being taken by the larger national and international tenants. See Annexure A.

We have also seen the arrival of several new foreign companies making their entry into the South African and African market, using Cape Town as a base. This is due to factors such as the harbour, ease of accessibility to the rest of the country as well as neighbouring African counties, such as Namibia. Tax benefits in certain specified industrial zones and a good governance system in the also promotes international trade and industry growth.

Several of these big box facilities are built on risk, with the developers having very few or no tenants lined up at the inception of the project. This is a clear indication of confidence in the strength and growth of the industrial market in Cape Town. A few examples of these large-scale business parks are Bracken Gate (phase 1 and 2), Golf Air Park (complete and fully tenanted), Mill Street Industrial Park (Under construction), Northpoint Business Park (completed in 2017 and 65% tenanted), Montague Park and Greenfied Park (completed in 2015 and fully tenanted).

The performance of industrial market rentals in South Africa for the second quarter of 2017 was the strongest in Cape Town, with a growth rate of 9% (nominal market rentals for prime industrial space). In the year earlier, the BER Building Cost Index recorded a preliminary growth rate of 6%. This implies that industrial rentals were able to show real growth rate in Cape Town. See Annexure B. This is a trend that we do not foresee slowing down in the next five years, with several new developments either under construction or in the pipeline to deal with this demand.

Factors influencing Cape Town’s industrial sector 1. Cape Town CBD expansion Cape Town city alone is the second highest earning metro area in the country, producing 9.9% of South Africa’s total GDP (with Johannesburg producing 15.39%). With the growth of Cape Town’s city centre, the traditionally industrial outskirts, namely Woodstock, Salt River etc., have become the CBD alternative, creating a demand for industrial nodes elsewhere. See Annexure C & D.

2. Buyers’ market Investors with access to cash will be able to benefit from the predicted price stabilisation or decrease, and will have more negotiating power in the market. Property can provide an excellent investment opportunity during what can only be described as uncertain times.

3. Influx of business’s and top tier management and staff to Cape Town It is apparent that there is an increase in companies wanting to establish their business and operations in the Western Cape for reasons such as good governance, infrastructure and local council’s support for new property developments.

Vacant industrial erven in Cape Town showing decent growth in 2017

Vacant industrial land prices are generally determined by two overriding factors: namely, availability and achievable rentals in the area. In Cape Town, it is becoming apparent that the former is one of the biggest determinants of price, largely due to lack of land opportunities in the well-established and popular industrial nodes. Nodes such as Paarden Eiland and Montague Gardens have grown to capacity over the last three years, thereby greatly driving up the price of any available parcels. They have also necessitated the creation of new large industrial precincts to deal with the vacancy bottleneck, as described earlier. The results of this, as well as the need to find cheaper land to achieve reasonable rentals, has driven developers to the outskirts of Cape Town, with the result that more businesses are moving away from the cities CBD in search for cheaper rentals or purchasing options.

In the second quarter of 2017 the stand values in Cape Town increased by 7% compared to a year ago in 2016.

Mean Prime Industrial market rentals as in quarter 2017:2 (R/M2 p.m; gross lease; excl VAT) Area size leased in M2 Vacancy a b r2 250 300 1000 2500 5000 Paarden Eiland / Metro 59.43 57 55.29 53.50 50 1.7 4.381 - 0.97 0.054 Montague Gardens 54.61 51.25 48.13 49 47.25 2.9 4.212 - 0.79 0.043 Marconi Beam 53.71 50.14 49.29 48.57 45.86 2.8 4.218 - 0.91 0.045 Killarney Gardens 46.43 43.86 42.14 38.60 37.20 2.9 4.253 - 0.99 0.076 Atlantis 40 40 40 40 35 4 3.907 - 0.50 0.035 Woodstock / Salt River / 67.50 63.75 51.67 46.67 46.67 2.3 4.963 - 0.91 Observatory 0.138 Athlone 1 & 2 40 39 38.33 37.67 35 3 3.913 - 0.89 0.040 Lansdowne 46.67 43.33 41.67 40 40 3 4.099 - 0.89 0.051 Diep River 57 52 51.25 50 52.50 2 4.145 - 0.41 0.026 Retreat/Steenberg 59.33 59 57.67 61.50 50 2.3 4.319 - 0.34 0.039 Capricorn Park 58.33 53 53.50 53 45 1.7 4.431 - 0.75 0.068

Maitland 53.86 49.33 44.17 41.33 44.20 2.9 4.355 - 0.73 0.075 Ndabeni 60.33 57 54.67 49.67 47.17 1.8 4.563 - 0.99 0.083 Airport 54 51.25 50.44 49.25 48.86 2.6 4.146 - 0.90 0.031 Epping 1 & 2 47.44 46.75 45 43.63 41.13 2.6 4.127 - 0.96 0.047 Elsies River (Excluding, 35.20 33 30.40 29.40 25.50 2.1 4.113 - 0.95 Central Park) 0.099 Parow Beaconvale 43.71 42.29 40.71 37.57 34.14 3.1 4.243 - 0.96 0.081 Business Park 48.67 48 45.50 42.17 40.67 3 4.257 - 0.97 0.065 Parow Industrial 45 43.75 41.13 38.63 37.38 3.8 4.173 - 0.99 0.065 Parow East 47.33 45 42.33 38.80 34 2.3 4.465 - 0.97 0.107 Bellville Oakdale 40 38.33 35 32.67 38 1.5 3.845 - 0.26 0.035 Bellville 46.67 42.50 42.17 36.80 35.20 2 4.356 - 0.96 Stikland/Kaymor 0.094 Bellville Triangle 40.40 37.83 37 33.60 32.20 2 4.115 - 0.98 0.076 Bellville South/Sacks 42.43 38.33 37.17 36.50 34.33 3 4.058 - 0.90 Circle 0.061 43.50 39 39 37.50 36.50 1 4.020 - 0.84 0.051 Brackenfell Industria 50.83 47.17 43.33 40 39.60 2.6 4.394 - 0.96 0.087 45 41.67 38.33 37.67 36 1.5 4.177 - 0.93 0.071 Blackheath 39.67 37.83 34.08 33 32.60 2 4.048 - 0.91 0.069 Saxenburg Industrial 44.60 43 39.40 36.80 36.80 2 4.233 - 0.98 Park 0.079 Okavango Park 50 46.67 42 40.67 40.67 1.5 4.452 - 0.97 0.099

Annexure A

Pioneer rental rates for new, state of the art industrial developments during quarter 2017:2. Highest gross rental rates achieved (1000m2 units). Rands per rentable m2 (excl VAT) Pioneer Normal prime Difference (%) Central Witwatersrand 80 43 86 West Rand 69 42 64 East Rand 70 46 52 Durban 70 54 30 Cape Town 75 44 70 Bloemfontein 65 32 103

Annexure B

Annexure C

Annexure D

References http://rode.co.za/state-property-market-south-africa https://www.property24.com/articles/south-african-property-prices-and-trends-revealed/24432 http://www.capetownccid.org/about-ccid/publications/The-State-of-Cape-Town-Central-City-Report/61 https://www.property24.com/articles/cape-towns-industrial-property-market-growing/23998