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 Warehouse boom takes hold as manufacturing declines

 

 The slow decline of manufacturing in South Africa is making its impact felt in the local property market as demand for factory space wanes. Shane Padayachy, property finance specialist at Business Partners Limited, says one the defining property trends of 2017 is the move away from factory premises to warehouses.

More and more owners of industrial property are converting their old smoke stacks into distribution-type premises, and new developments in industrial areas have a lighter industry and warehouse feel to them.

While elsewhere in the world the increasing demand for warehouse space is driven partly by the rise of online retail, in South Africa the warehouse boom is more the result the replacement of locally manufactured goods by imported items, which needs warehouses for repacking, sorting and shipping, says Padayachy.

Local manufacturing, which for years has been suffering from low productivity, labour unrest and in the recent past electricity-supply problems, may well see an uptick as the low value of the rand makes South African exports more competitive and imports more expensive. But the result of any turn-around is unlikely to affect the property market in the foreseeable future.

For now, times are good for property owners with warehouse space close to markets and in popular distribution nodes.

Meanwhile, the warehouse boom is feeding into another prominent property trend: the rise of mixed-used developments. The conversion of noisy and dirty old factories into warehouses and light industry space fits well into the increased demand for living, working and playing in close proximity, says Padayachy.

Industrial areas are not turning into fully fledged mixed-use areas yet, but the fact that the edge is being taken off the worst of the old smoke stacks means that companies in industrial areas are increasingly adding retail outlets to their distribution operations and coffee shops are sprouting in old factory corners.

Many new developments are being planned as fully integrated residential, retail, office, workshop and educational spaces. The drivers of the move towards mixed-use areas are the need for security and the convenience of not having to commute through increasingly congested city streets.

Less commuting also means fewer harmful vehicle emissions. At least part of the trend to mixed-use areas is due to modern environmental awareness, which is the main reason for a third prominent property trend this year: green buildings.

There is a lot more to environmentally friendly developments than just the proximity of work, school, shopping and living space. Building materials are chosen for their low carbon impact and their insulating properties. Buildings are designed to maximise the use natural lighting and to reduce the need for cooling or heating. Solar energy facilities and water recycling infrastructure have become part of the architecture.

Padayachy says lower maintenance and energy costs over the long term should offset the higher short-term construction costs of green developments for both landlords and tenants.

Recent research has shown, however, that the cost premium of green buildings is actually lower than initial estimates. Figures released by the Green Building Council of South Africa and the Association of South African Quantity Surveyors indicate that green buildings cost on average only 5% more than traditional buildings – much lower than the previously held view that they are up to 50% more expensive to construct.

In South Africa, the green building trend is part of the international movement towards sustainability, but here the idea has also been boosted by electricity supply concerns. Load shedding may no longer be part of the business reality for many entrepreneurs, but concerns over the increase in the price of electricity have certainly fuelled the demand for space in green buildings that require much less energy for heating, cooling and lighting.

Padayachy says a stubborn feature of the South African property market in recent years – the glut of office space – is likely to remain for the rest of the year.

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