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Industrial vacancies still on a par with long-term averages

Tuesday, July 27, 2010

A look at industrial vacancy trends shows that there is, as yet, no need for industrial property investors to panic and make friends with their bankers.

Vacancies have been showing a strong northward trend over the past few quarters — on the back of severe weaknesses in the industrial property market’s two support pillars, namely retail sales and manufacturing activity. Nevertheless, current vacancy levels are still more or less on a par with their 19-year averages (refer Table 1). On the Rode industrial vacancy scale, the Central Witwatersrand still recorded a vacancy factor of only 2,2 in the first quarter of 2010 compared to a long-term average of 2,6. Both figures denote that vacancies are, in the opinion of our panellists, still ‘low’ (1—3), with ‘high’ being a figure of 7—9.

In some other cities, the comparable figures were as follows:

Cape Peninsula 2,9 (3,2), Port Elizabeth 3,0 (3,0) and Durban 3,3 (2,5) (long-term averages in brackets).

Good news from a demand point of view is the fact that retail sales and manufacturing activity can be said to be in recovery mode (see corresponding graph). But, having said that, doubts as to the strength and sustainability of their resurgence still prevail. This is especially the case with manufacturing activity, considering the June reading of the Kagiso Purchasing Managers' Index (PMI). This Index has now — after three previous months of declines — dipped below an index value of 50, the cut-off point between contraction and expansion.

As the Index can be said to be a good indicator of overall conditions in the manufacturing sector, the re-emergence of weaknesses in manufacturing activity could mean upward pressure on industrial property vacancies and could lead to a situation where vacancies edge closer to, or even surpass, their long-term averages.

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