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INDUSTRIAL LAND IN SHORT SUPPLY

Category Newsletter: 1 - Head Office

Picture the scenario... You decide to open a distribution, logistics or manufacturing concern in Durban. You call up industrial real estate brokers and give them your required specs. They can’t come up with a suitable solution for your needs. An online search yields the same results. Either the ceilings are too low, the yard ratios inadequate, the offices far too large or too small, or the electrical supply in the area is insufficient.

You then decide to purchase industrial land within a 20km radius of the port – from where your goods or raw materials are either received or exported – with a view to build your own facility. You once again find that your broker tells you that there is no industrial land for sale so you throw your arms up in despair!    

This is a scenario that we are faced with almost daily at Broll and it is getting worse. The shortage of industrial land is forcing up prices that places upward pressure on industrial rentals, especially when compared to other major metropolitan areas such as Johannesburg and Cape Town. This, combined with the fact that the municipal rates randage in Durban is  the highest in South Africa, does not bode well for gross industrial rentals either.

Remember that when we refer to “industrial land” prices we do not refer to raw land prices. We speak in prices per square metre or hectare (depending upon the size) of zoned, platformed or serviced land ready for construction. By serviced land we refer to land with sewer, water supply and substantial electrical supply to the site or to the site boundary. Without all of these it would be like buying a car with no gearbox or engine. The costs of bringing raw land to a zoned, service and platformed state are huge and time -consuming, usually involving traffic studies, environmental impact assessments, town planning, bringing in electrical supply and sewer systems.  Other impacts are the loss of land due to banks, roads and servitudes, and huge professional fees and holding the land (opportunity costs of capital and rates) for years also presents a barrier. Durban’s topography is very steep involving expensive cut-and-fill. The fill sites then need to be piled.

The result of all of this?

Land prices within a 15 to 20km radius of Durban CBD have now hit R20 to R25 million per hectare (or R2,000 to R2,500 per square meter) ex VAT, as can be illustrated by recent sales in Riverhorse Valley and the Jacobs/Prospecton South Durban Basin. While these are extreme cases they cannot be ignored as these sales have taken place and been registered and are public record.  As we move the radius further from Durban to over 30kms – Pinetown through Cornubia – we see prices have risen to R15 million per ha (R1,500 per square meter). 

As we move 35km away from Durban and beyond, however, prices begin to drop accordingly as supply increases and demand drops – with the result that areas like Tongaat and Cato Ridge become cheaper – under R10 million per ha. As we move out further still – a radius of more than 60km – we find areas like PMB and Isithebe offering outstanding value.

The scarcity of industrial land within a tight radius of the CBD means that rentals for new A- Grade purpose-built facilities, with 13m eaves heights and high yard ratios have now reached R70 per square meter triple net – calculated as a through-rate for the portion under roof. This equates to approximately R85 to R90 gross ex VAT per square meter.

Where it’s going to end is anyone’s guess.

Author: Anthon van Weers

Submitted 16 Apr 18 / Views 397