Shortage of factory space could make oldies golden

THE older industrial areas of Johannesburg have the potential to achieve significantly increased rentals if property owners redeveloped buildings and introduced services such as security.

A shortage of quality industrial property stock in Johannesburg makes the redevelopment of these areas — many of which have good access to freeways — viable.

Industrial-focused Metboard Properties is one landlord hoping to create a domino effect on other properties in the area by redeveloping some of its properties in the Alrode industrial node.

The JSE-listed company owns 11 industrial properties — all within a 5km radius — in the Alrode area, including Newmarket Industrial Park.

Metboard plans to redevelop the 90000m² Newmarket Industrial Park as the need arises and introduce the concept of a secure industrial park to Alrode.

Estienne de Klerk and Tyrone Govender, joint fund managers of Metboard, say the plans for Newmarket range from demolishing some buildings and creating new structures to redeveloping existing properties. Govender says redevelopment plans include the introduction of controlled access and security around the park.

The company hopes this will improve Alrode’s general rating and encourage other industrial property owners to rejuvenate their properties, thereby increasing rentals in the area.

De Klerk says that in the 1990s Alrode was unable to compete with relatively new areas such as Jet Park, Tunney and Meadowdale. “These other areas became established with newer buildings and attracted a lot of the operations out of Alrode,” he says.

De Klerk and Govender say what makes Alrode attractive now is that land costs are lower than the new industrial areas, its existing infrastructure and the fact that it is close to the N3, N1 and N17 highways.

David Green, MD of commercial and industrial property brokers Pace Property Group, says Alrode’s rentals are substantially lower than the new industrial nodes such as Longmeadow and Linbro.

However, the take-up of industrial space in Gauteng has brought about a shortage of quality stock, particularly larger buildings. As a result, the older and previously cheaper areas are attracting a lot more attention from investors and tenants.

“Many of the older properties are providing excellent opportunities for redevelopment or renovation, and through that process the owner is able to achieve better rentals while the tenant still has the benefit of signing a lease at rentals well below those of the newer areas and still occupy a good quality building,” says Green.

“Without a doubt there is major potential for redevelopment of properties in older areas.” Green says that rentals in new areas such as Linbro Park are R40/m² while Alrode rentals are less than R10/m². If property owners renovate in an area such as Alrode they stand to increase rentals to R18/m² to R20/m².

“In order to achieve those rentals you also have to introduce security, cleaning and garden landscapes to create a better business environment, which is what tenants want,” says Green.

However, in Isando, another old area, there is limited opportunity. Green says that in Isando many buildings have already been upgraded. Consequently rentals have already “risen sharply”, and are no longer among the most affordable.

Property economist Erwin Rode of Rode & Associates says the advantage of the older Johannesburg industrial areas is that many of them are central, with good access to freeways.

“If one could pull it off, in theory redeveloping and improving security in older industrial areas has the potential to add tremendous value to those areas,” says Rode.

Article from: www.businessday.co.za