South African office market remains slow while logistics and distribution facilities such as Linbro Park, Longmeadow and Raceway Industrial Park have strong demand

From Business Day

Capital targets industrial sites for growth
Commercial property market is awash with demand in the logistics and distribution sector, but the office market remains a concern with new tenants scarce
Published: 2012/08/01 08:14:23 AM

Property unit trust Capital Property Fund, which yesterday posted a solid set of results for the six months ended June, is taking advantage of cheap construction prices to build up its industrial portfolio to meet increasing demand for space.

MD Barry Stuhler said yesterday the fund, which posted a 6.12% increase in distributions to 33.28c per unit from 31.36c previously, was rolling out its development pipeline with 33,000m² of logistics and distribution facilities completed and fully tenanted.

“The market is awash with demand in the logistics and distribution sector, but the office market remains a concern with no new tenants in the market,” he said.

“We are getting good prices for land for industrial developments and we continue to look for best quality land which is providing us with good yields,” Mr Stuhler said.

“We are in the market looking for good industrial land and want to secure more in addition to what we have already secured.

“The construction sector is under pressure and we are taking advantage of that to develop and renew our portfolio especially in the industrial sector,” he said.

Capital said that apart from the logistics and distribution facilities that have been completed, a further 30,000m² of industrial space was under construction and also fully let. The company said 15,000m² was also under construction in the logistics and distribution space but had not yet been leased.

In addition, the fund is in the process of evaluating an industrial property development of 52,000m² and is in final negotiations.

Mr Stuhler said that industrial properties, which constitute 51% of the fund’s portfolio, again performed strongly with tenant demand for space continuing to be strong in industrial areas such as Linbro Park, Longmeadow and Raceway Industrial Park.

“Encouraging demand for logistics and distribution h as continued to improve, but demand for manufacturing space is in decline in line with the downward trend in this sector.”

Mr Stuhler said that Capital Property’s strategy continued to reduce its exposure to the manufacturing sector and enhance the portfolio with the development of distribution facilities.

Capital, which has no black economic empowerment (BEE) rating, is planning to sell off the office portfolio tenanted by the government because it was becoming difficult for it to renew leases.

“We are reducing our exposure to offices and government and we want to sell the whole portfolio to BEE companies that are best placed to interface with government.

“Because we don’t have a BEE rating it becomes an issue when interfacing with government and one example is that it took us 18 months to renew a lease with government in our Grand Central property in Cape Town, which is an awful lot of time,” he said.

Vacancies in Capital’s property portfolio declined marginally overall to 6.1% from 6.3%, with the industrial portfolio having a vacancy factor of 4.4%, offices 13.3% and retail 6.5%.
Capital Property is forecasting growth in distribution of 4%-7% per unit for the full 2012 financial year.

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