Q Johannesburg Industrial Market Report

Transcription

1 Johannesburg Industrial Market Report Purchasing managers show little concern for low consumer confidence, boding well for industrial accommodation demand Q Central London Office Market Report Q3 2016

2 Overview Johannesburg If consumer sentiment is anything to go by, trade activity is likely to remain subdued in Ordinarily, this would point to low demand for logistics and warehousing space. In a happy contrast, purchasing managers in the manufacturing sector have got off to an optimistic start, which suggests 2 that activity is likely to be better than expected. In preparation for a year of better economic growth than in 2015 and 2016, the Johannesburg market is experiencing an increase in industrial property deals, particularly in the popular Northern and Eastern nodes but also with notable interest in the West Rand. The market saw healthy rental growth and vacancies were at comfortable levels in the last quarter of Despite a high number of developments, we anticipate no over-supply in the market over the short term. Johannesburg Industrial Market Report Q4 2016

3 In numbers R54/m² Average rental rate R65/m² Prime rental Vacancy rate 4.9% Johannesburg Industrial Market Report Q

4 Issues to watch Decreasing trade statistics could impact demand levels for logistics and warehouse accommodation. A shift in activity on the West Rand stimulates investor interest. 4 Central London Office Market Report Q3 2016

5 FNB/ BER Consumer Confidence Index Consumer Confidence Index March-11 Jun-11 Sep-11 Dec-11 March-12 Jun-12 Sep-12 Dec-12 March-13 Jun-13 Sep-13 Dec-13 March-14 Jun-14 Sep-14 Dec-14 March-15 Jun-15 Sep-15 Dec-15 March-16 Jun-16 Sep-16 Dec-16 Demand The FNB/BER Consumer Confidence Index closed the year with a notable decline to -10 index points in Q4 2016, from -3 index points in Q3. Despite a visible recovery in the local currency in the second half of the year, inflation, rising interest rates and the potential impact of political factors on the economy have created uncertainty among households. Durable good sales at constant prices declined by a 7.8% y/y in the first three quarters of 2016, according to data from the South African Reserve Bank, marking the third consecutive year of contraction in aggregate durable goods sales. The Index has been a good lead indicator for durable consumer goods, and the contraction in durable good sales is evidence of this. The trend has also filtered into semi-durable goods, with both Woolworths Clothing and Mr Price producing weaker sales growth during the 2016 Christmas season than in the past few years. The economy is beginning to see the full impact of higher inflation, rising interest rates and high levels of household debt to disposable income. Despite the introduction of some international retailers, imports by Rand value grew by a marginal 1.0% y/y in 2016, without accounting for higher inflation. Next to join the queue is likely to be non-durable essential goods. While the level of consumption of food, fuel and other essential goods is not expected to decline substantially, there are signs that consumers are looking for cheaper alternatives and ways to reduce consumption. This filters into the performance of logistics and warehousing accommodation. With lower trade activity evident in the recent trade statistics (imports and exports), demand for space is likely to be stagnant at an aggregated level, resulting in a reduction in property deals. Even so, economic prospects for 2017 have improved from 2016, and the long term potential of the local market continues to attract occupiers. This is apparent with various international retailers looking to enter or expand their footprint in South Africa. Despite reduced activity, industrial vacancies remain low and entrance into the market is likely to drive developer activity. The year has begun well in the sector, with several key deals highlighting improved activity compared to the end of 2015 and beginning of 2016 (see key deals table). There is a likelihood of activity slowing down post the first few months of the year with early optimism curbed by weaker consumer activity. Nevertheless, it all points to a definite improvement in comparison to the last two years, warranting some preparation in the industrial and manufacturing sector. 5 Johannesburg Industrial Market Report Q4 2016

6 Improved industrial activity in Q Deal name Aria Technologies Circa Globepak Mr. Board Oberthur Technologies Imvula CTDI Supply Development Size (m²) 2,800 6,200 4,000 8,500 4,000 13,000 9,000 Approximate size (m²) Location Coporate Park South, Midrand Linbro Park, Sandton Samrand, Centurion Louwlardia, Centurion Linbro Park, Sandton N1 Business Park, Louwlardia Linbro Park, Sandton Node Developer Key deals Aeroton Business Park 154,924 Johannesburg South RPP Developments Randport Industrial 130,000 Germiston Atterbury Plumbago Business and Logistics Park 100,000 Kempton Park JT Ross Old Mint Park 75,217 Midrand Atterbury Dominic Corner 67,875 Gauteng Growthpoint Meadowview Business Park 50,000 Longmeadow Intaprop Midrand Central Business Park 27,500 Midrand Growthpoint Torre Lifting Solutions 20,752 Waterfall City Atterbury Supply Despite the economic uncertainty and subdued demand, investor confidence remains high in Johannesburg s industrial market, in anticipation of a recovery. The development pipeline has over 750,000m² of accommodation under construction with the likes of Fortress, Equites, Atterbury, Growthpoint and Redefine behind a significant portion of these projects. The enhanced confidence is also visible in the rise of speculative developments. A year ago, most developments were largely nonspeculative in nature, a sign of cautionary times. By contrast, in early 2017, substantial speculative developments make up a notable portion of the current project pipeline, with industrial parks contributing to this significantly. Location is a driving force in these developments, with the northern node (Midrand, Sandton, Centurion) and the eastern node (Longmeadow, Kempton Park) dominating activity. Vacancies There is no concern of over-supply in the Johannesburg industrial market, despite the growth in development activity. Developments are aimed at future demand, so the current landscape of low consumer confidence should not be discouraging to investors or occupiers. As stock increases, vacancies will increase, but these are expected to be brief and should be absorbed within a short time. 6 Johannesburg Industrial Market Report Q4 2016

7 The industrial vacancy rate remains low at 4.9% in Q4 2016, having declined from 6.0% in Q Low vacancies continue in the North and East, despite the additional stock in both areas. Vacancies in northern zones declined from 5.1% in Q to close the year at 4.0%, while eastern areas saw a slight increase from 4.0% to 5.0% in the same period. The visible turnaround in demand for industrial property in the West is worth noting. According to SAPOA, the West Rand had the third highest industrial vacancy rate nationally in Q However, recent data suggests a vacancy rate of 6.0%, close to prime nodes in the North and East. Why? It has everything to do with the rapid residential expansion of Johannesburg City towards Honeydew and Roodepoort. This has contributed to the growth of retail accommodation in the area, which in turn is positively impacting the demand for warehousing and logistics space in this part of the city. The West Rand is also seen as the gateway to neighbouring provinces like the NorthWest, as well as some neighbouring countries such as Botswana and Namibia as destinations for South African exported goods. The node is further enhanced by the successful freight/cargo terminal at Lanseria International Airport, with the added advantage of average rental rates that sit slightly lower than those in the northern and eastern nodes. Rental rates Overall, Johannesburg has seen an estimated 8.2% increase in gross rental rates, maintaining levels close to the average escalation rates. It is encouraging to see that industrial property rentals are achieving rental growth above inflation, which was not the case at the beginning of The year closed at a CPI inflation rate of 6.4%. It must be noted that rental growth was not consistent across the city, with northern and eastern nodes recording rental growth just above 10.0%, while the other areas only saw marginal growth changes. Outlook ABSA PMI Average rental R/m² / / / / / / / / / / / / / / / / /01 Data: BER The ABSA PMI improved to 50.9 index points in January 2017, the first time that the reading has breached the 50.0 point mark in five months. This reflects cautious optimism in the manufacturing sector. This aside, expectations of growth are visible in the rise of the New Sale Orders component of the index, which recorded its third consecutive month above the neutral mark at 50.4 index points in January. Also interesting is the Expected Business Conditions component of the index, which increased exponentially to 70.3 index points in January. This component gauges the business activity expectations of purchasing managers in six months time. While some New Year optimism may have driven this unexpected peak, it also reflects the outlook of key players in the manufacturing, logistics and warehousing sector. This on its own could make a significant difference to the demand for industrial accommodation over the first half of the year. Good preparation for the second half of the year, when managers expect strong growth. Although vacancies may creep up with completions in 2017, this is not likely to have a negative impact on rental rates which are expected to improve with the gradual recovery in activity.

8 Contact us JLL South Africa Johannesburg 3rd Floor, The Firs Cnr Biermann & Cradock Ave Rosebank, South Africa, 2196 Phone: With other regional offices in Dubai, Abu Dhabi, Riyadh, Jeddah, Al Khobar, Cairo, Casablanca, Lagos and Nairobi Tom Mundy Head: Research, Sub-Saharan Africa Zandile Makhoba Head: Research, South Africa Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof. 8 Central London Office Market Report Q3 2016