SAPOA’s Industrial Vacancy Report

Key findings:

  • As at June 2019, the national industrial vacancy rate as recorded was 3.4% as measured by the MSCI Annual Property Index – unchanged on the revised December 2018 figure. The industrial sector vacancy rate has now been below 4% since 2012Q1 barring a temporary development-driven blip in the first half of 2017 underlining the sector’s high level of occupancy despite a challenging macroeconomic backdrop.
  • The low and stable vacancy rate has see the sector’s base rental growth remain closely tied to inflation which suggests that little excess supply remains in the marketplace. During the first half of 2019, base rental growth increased to 5.3% from 4.7% as at December 2018.
  • This basic rental growth of 5.3% hasn’t filtered through to an equal level of capital growth which suggests that valuers are still taking a slightly cautious view on future earnings and instead preferring to leave some return on the table. That said, industrial sector capital growth at 2.4% outstripped the retail (0.9%) and office (0.2%) sectors over the last year.
  • Industrial property fundamentals have benefited from relatively constrained supply, stable capacity utilisation, and steady (though not spectacular) growth in manufacturing volumes despite an unfavourable macroeconomic climate.
  • Historically, there has been a 12-24 month lag between economic data releases and meaningful shifts in industrial property fundamentals. For that reason, the level of building completions and manufacturing production recorded for the rest of 2019 will be critical to the sector’s short term fortunes.
  • In July 2019, building completions reached a 9 year high (on a 12 month rolling basis) and manufacturing volumes recorded one of its worst single-month drop in the last five years. If this signals the start of a softening trend, industrial property fundamentals might deteriorate while a rebound in production and moderation in supply  will likely see the sector continuing its out performance.
  • All industrial segments saw their vacancy rates improve further during the year to June 2019 – with the exception of Industrial Multiparks which saw a 120bp from 5.6% to 6.8%. The vacancy rate of manufacturing property at 0.3% is the lowest among the industrial segments suggesting that the improved manufacturing output of 2018 has had a positive impact on the segment’s occupancy.
  • The vacancy rate of Warehouse and Distribution related property improved 50bps to 4.0% with its base rental growth declining to 4.2% from 5.6%. This suggests that landlords are having to trade off rental growth in favour of filling vacant space.
  • Analysing industrial property by box size reveals a mixed picture. Small units below 2.5k sqm and large units of above 25k sqm saw its vacancy rates rise in the year to June 2019. So too units with a GLA of between 5k and 10k sqm.
  • It would appear as if occupiers in the 5-10k sqm and >25k brackets are trading down into smaller boxes as the challenging macroeconomic environment and sideways trending capacity utilisation has occupiers searching for consolidation benefits and operational efficiency gains.

Read the full report here: