The Evolution of the Industrial Property Market in South Africa: A Look at the Past 5 Years

The industrial property market in South Africa has undergone major significant changes over the past five years. The country's economy has been affected by several factors, including political uncertainty, high unemployment rates, low economic growth, and a struggling manufacturing sector. These factors have had a direct impact on the industrial property market, which has seen major changes over the past few years. Below we touch on the most notable implicating factors relating to Industrial Property in South Africa.

1. Increased Demand for Industrial Property:

The industrial property market in South Africa has experienced a surge in demand over the past five years, primarily due to the growth of e-commerce. With the rise of online shopping, there has been an increased need for warehousing and distribution facilities to support the storage and movement of goods. Many retailers and logistics companies have expanded their operations in South Africa, leading to a growing demand for industrial properties in strategic locations.

Another factor driving demand for industrial properties is the need for manufacturing facilities. With the global pandemic disrupting global supply chains, many businesses have been forced to reconsider their sourcing strategies and move production closer to their customers. As a result, there has been an uptick in demand for industrial facilities that can support manufacturing and production processes.

Furthermore, the government's focus on promoting local manufacturing and production through policies such as the Industrial Policy Action Plan (IPAP) has contributed to the growth of the industrial property market. This has led to an increase in demand for industrial properties from local manufacturers seeking to expand their operations.

As such, the increase in demand for industrial properties in South Africa is expected to continue, as e-commerce and manufacturing sectors continue to grow, and businesses increasingly prioritize supply chain resilience and flexibility. However, the availability of quality industrial properties remains limited, and competition among tenants for suitable spaces is likely to remain high.

2. Shift Towards Smaller Industrial Properties:

There has been a shift towards smaller and more flexible industrial properties in South Africa over the past five years. This shift is primarily due to the growth of small and medium-sized enterprises (SMEs) that require smaller properties that are more affordable and easier to maintain. Additionally, these businesses often require more flexible lease terms that allow them to adapt to changing market conditions quickly.

The preference for smaller industrial properties has also been driven by changes in consumer behaviour. With the growth of e-commerce, businesses are increasingly looking to establish distribution centres in strategic locations closer to their customers. This has led to a greater need for smaller industrial properties in urban and suburban areas that can support last-mile deliveries.

Addionally, the rise of co-working and shared workspace concepts has also contributed to the shift towards smaller and more flexible industrial properties. Many SMEs and startups are looking for shared industrial spaces that can provide them with access to equipment and resources that they may not be able to afford on their own.

The trend towards smaller and more flexible industrial properties in South Africa is expected to continue as SMEs continue to drive economic growth and demand for suitable spaces. However, landlords will need to be more flexible in their lease terms and offer more value-added services to attract and retain tenants.

3. Rental Rates Have Increased:

Rental rates for industrial properties have increased steadily over the past five years. This is largely due to the increased demand for properties and the limited supply of quality industrial space. Additionally, landlords are becoming more selective in their tenants, preferring long-term leases and higher rental rates.

This increase is primarily due to the limited supply of quality industrial properties, particularly in prime locations such as Johannesburg, Cape Town, and Durban. As demand for these properties has increased, landlords have been able to command higher rental rates.

4. Increased Focus on Energy Efficiency:

This trend is driven by a combination of factors, including the rising cost of energy, government regulations promoting sustainable development, and increasing awareness among businesses and consumers of the environmental impact of industrial properties.

As a result of this focus on energy efficiency, there has been a significant increase in the adoption of green building practices and technologies in the industrial property sector. Many landlords are investing in energy-efficient features such as solar panels, LED lighting, and insulation to reduce energy consumption and lower operating costs. Additionally, there is a growing trend towards building properties with green certifications such as Leadership in Energy and Environmental Design (LEED) or Green Star ratings.

Moreover, some landlords are also investing in smart building technologies that enable them to monitor and optimize energy usage. This includes building management systems that can automatically adjust lighting and temperature settings based on occupancy levels and weather conditions, as well as real-time monitoring systems that enable landlords to identify and address energy inefficiencies quickly.

5. Investment Opportunities in Industrial Properties:

Investors are increasingly turning to industrial properties as a viable investment opportunity. The steady increase in demand for industrial properties, coupled with the limited supply of quality space, has led to increased investment in the market. Additionally, industrial properties often offer higher rental yields and longer lease terms compared to other commercial property types.

One of the main investment opportunities in the South African industrial property market is the growth of e-commerce. As more consumers turn to online shopping, there is an increasing demand for last-mile delivery facilities and distribution centres. This has led to a growing demand for industrial properties in urban and suburban areas that can support last-mile deliveries.

The growth of small and medium-sized enterprises (SMEs) has also created investment opportunities in the South African industrial property market. Many SMEs require smaller and more flexible industrial properties that are affordable and easy to maintain. Investors who are able to identify these opportunities and offer suitable properties to SMEs are likely to benefit from a growing market.

Focusing on energy efficiency and sustainable development in the industrial property sector has also created investment opportunities for investors. Properties that are retrofitted with energy-efficient features and have green certifications, such as LEED or Green Star ratings, are likely to command higher rental rates and attract more environmentally conscious tenants.

The South African industrial property market presents numerous investment opportunities for investors who can identify growing trends and meet the changing demands of tenants. With the continued growth of e-commerce, SMEs, and the focus on energy efficiency and sustainability, the market is expected to remain attractive to investors in the coming years.

6. Technology Advancements:

There has been a growing focus on automation, robotics, and other technological advancements that can improve efficiency and reduce costs in industrial facilities. This has led to an increasing demand for industrial properties that can support these technologies, such as those with higher ceilings and better access for machinery and equipment.

Automation and robotics have become increasingly prevalent in the manufacturing and logistics sectors, with businesses seeking to streamline operations and improve productivity. This has led to a growing demand for industrial properties that are equipped with the necessary infrastructure, such as power supply, internet connectivity, and security systems, to support these technologies.

Additionally, there has been a growing interest in the use of drones and other autonomous vehicles in industrial facilities, which can be used for tasks such as inventory management and monitoring. Industrial properties with larger outdoor spaces and secure access have become more attractive to tenants looking to implement these technologies.

The integration of technology into industrial properties is expected to continue in the coming years, as businesses seek to improve operational efficiency, reduce costs, and stay competitive in the market. This trend is likely to drive demand for industrial properties that can support these technologies, leading to further evolution in the industrial property market in South Africa.

To sum up, the industrial property market in South Africa has undergone notable transformations in the past five years. These changes have been driven by factors such as the growth of e-commerce, the preference for smaller and flexible properties, rising rental rates, a focus on energy efficiency, increasing investment opportunities, and the integration of technology. As businesses continue to adapt to changing market conditions, the industrial property market is expected to evolve further, creating new opportunities for investors and tenants alike.