Industrial property yields on the rise

This is according to Tony Bales of Epping Industrial Property who says that the listed property sector has recently lost about 10% in value from their all-time high. The outlook for the listed sector is currently negative with 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 and buyers are taking a far more conservative approach."

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"The listed property sector on the JSE is now offering yields as high as 10% on certain 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 generally about one to 1.5% higher than Cape Town, thus ensuring investors in fixed property being able to find investments offering returns of 11%+ in Gauteng," says Bales, who 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!"

"Property owners are finding it difficult to get used to the idea that their property values have in fact dropped 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 solid as investors would have wished for. This further exacerbates investor negativity."

Interest rates - a fundamental driver

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.