During the period 2006-2008 the industrial property market in the greater Cape Town area experienced an unprecedented boom in land values, where increases of 50% to 60% per annum were not unusual. It was perhaps inevitable that a correction would occur, as prices became unfeasible for development.
Andy Beddow, director of Baker Street Properties, says industrial land prices have contracted in Cape Town in the last nine to 12 months, as demand slows due to the prevailing economic conditions.
"Twelve months ago the average industrial land price was about R1,350/sqm, with exceptional sales reaching as high as R1,750/sqm. Now the average sale rate is barely R950/sqm, reflecting a 30% decline in pricing. However, we must bear in mind that this land value was in the region of R400/sqm (Excl. VAT) in 2005."
"A market correction has also been experienced in rentals - where nine to 12 months ago R35/sqm (excl. VAT) was achieved for reasonable industrial space, now the same space is achieving R30/sqm (Excl. VAT)."
Beddow says that there are currently very few industrial sales and developments taking place, with the unrealistic seller's expectations (a hangover from the "boom party" of late) compounded by the lack of liquidity in the banking sector.
"On the positive side, with declining interest rates the yields are averaging 10% to 11% for good industrial property across the board," adds Beddow.
"While the current trading conditions in the industrial market may be slow, we can see signs that it is bottoming out. We anticipate a modest upswing towards the end of this year, improving into 2010," Beddow concludes.