Why Industrial Property remains a good source of cash flow. Industrial property is a type of commercial property that includes warehouses, factories, distribution centres, and other manufacturing, storage, or logistics facilities. Industrial property is often considered a stable and resilient asset class. It can generate steady cash flow for investors, especially during economic uncertainty or disruption.
Here, we explore why industrial property remains a good source of cash flow in South Africa in 2023 and how you can use this opportunity to diversify your portfolio and increase your income.
1. High demand and low supply
One of the main drivers of industrial property performance is the balance between demand and supply. South Africa has a high demand for industrial space. Driven by the growth of e-commerce, logistics, manufacturing, and other sectors that require efficient and flexible facilities. However, the supply of industrial property is limited due to the lack of suitable land, high construction costs, and regulatory barriers. This creates a favourable market condition for industrial property owners, who can charge higher rents and enjoy lower vacancy rates.
2. Long-term leases and strong tenants in Industrial Property
Another factor contributing to the cash flow stability of industrial property is the nature of the leases and tenants. Industrial property leases typically range from 3 to 10 years or more. This means that industrial property owners can lock in their rental income for extended periods and avoid the risks of tenant turnover and rent renegotiation. Moreover, industrial property tenants tend to be more creditworthy and reliable than other tenants. Tenants typically invest heavily in their facilities and equipment and are less likely to default or relocate.
3. Low maintenance and operating costs assisting Cash Flow
Industrial property also has the advantage of lower maintenance and operating costs than other commercial property types. Buildings do not require much aesthetic or functional upkeep, as they are designed for practical purposes rather than customer appeal. Industrial property also has lower utility and service costs. They do not need to provide amenities such as air conditioning, lighting, or security that are common in office or retail properties. This means that industrial property owners can keep more of their rental income as profit. Resulting in more cash flow available for reinvestment or distribution.
4. Potential for capital appreciation
In addition to generating steady cash flow, industrial property also has the potential to appreciate over time. As the demand for industrial space continues to outstrip the supply, the prices of industrial properties are likely to increase accordingly. Industrial property owners can also add value to their properties by making improvements or expansions that enhance their functionality or attractiveness to tenants. Furthermore, industrial property can benefit from developing (or changing) infrastructure or amenities in the surrounding area that improve its accessibility or desirability.
Industrial property is a good source of cash flow in South Africa in 2023. It offers high demand and low supply, longer-term leases and strong tenants, low maintenance and operating costs, and potential for capital appreciation. One should consider investing in industrial property to diversify one’s portfolio and increase one’s income. Depending on one’s budget and risk appetite, one can buy an existing industrial property or develop a new one. One can also partner with a reputable industrial property developer, manager or broker who can help you find the best opportunities and manage your properties effectively.