The slowdown of the industrial property market has started to take effect. Industrial property yields on industrial property investments have begun to rise.
This is according to Tony Bales of Epping Industrial Property. He emphasis that the listed real estate sector has recently lost about 10% in value from their all-time high. The outlook for the listed sector is currently negative. The anticipated rise in interest rates expected to bite deeper in the not-too-distant future.
“The non-listed sector appears to have cautioned along with the listed sector. Buyers are taking a far more conservative approach.”
“The listed property sector on the JSE is now offering yields as high as 10% on individual shares. Yields on fixed property have risen into double-digit territory in Cape Town, which has traditionally had the lowest yields in SA. Yields in Gauteng and other areas are about 1 – 1.5% higher than Cape Town. This ensures investors in fixed property being able to find investments offering returns of 11%+ in Gauteng,” says Bales. He also cautions that another contributing factor is that banks have become risk averse and are not prepared to give investors the level of finance they used to get. “There is often the case that there is a willing seller, willing buyer, but an unwilling financier!”
Get used to higher industrial property yields
“Property owners are finding it difficult to get used to the idea that industrial property yields have risen and their property values have in fact dropped (in real terms) during the last 12 months, but their income has gone up. Many investors are choosing to just hold onto their properties, but those wishing to sell are coming under increasing pressure to be realistic with their selling prices.”
“Thankfully, industrial property is underpinned by longer leases, but in many cases, tenants are also taking strain, and the underlying cash flows are not as stable as investors would have wished for. This further exacerbates investor negativity.”
Bales advises that at the moment, the local industrial (direct and listed) property market’s fundamental driver appears to be interest rates.
“The current outlook forecasts a period of higher interest rates for a few years ahead before inflation pressures subside. In the short term, property investors should get used to this changed environment and adjust their portfolios accordingly. For those able to remain committed, the longer term should continue to show good returns on industrial property,” concludes Bales.