The Industrial Property Development Market – From Bust to Boom

Historically the property development market in South Africa has been vibrant. But when the current world economic slump began to take hold back in September 2008, it drained the confidence out of many investors and the market nose-dived along with the general economic situation ERP accounting system. But with the signs of economic recovery beginning to take hold again, what prospects are there for a resurgence in the industrial property market?

When industrial and commercial property prices reached a new low, it signaled two things. Firstly that the market was severely depressed and was likely to stay that way for several years, but also that the bottom of the trough had been reached and that the only way out, was up. With the market having stabilized at its new low, it meant that the glut of distressed properties that had been pouring in had stopped, and with the laws of supply and demand in operation, with the excess of supply far outstripping demand, prices remained depressed.

However, the last 12 months has seen the signs of recovery taking place in the commercial sector, and with property prices still artificially low, this has begun to stimulate demand, as property development speculators are one again sensing the opportunity of making good short to medium term returns on new investments.

Office properties in particular are a good example of the current optimistic outlook. With economic forecasts being positive, albeit slow-moving, and prices being as low as they are, now is a good time to buy. As confidence returns to the economy, the potential for new letting agreements is rising and properties are once again beginning to move, bringing about a slow but steady rise in prices and rates. It is forecast that this trend will continue slowly but surely, depleting the supply surplus which will eventually trigger a new bout of property development taking place.

Current thinking is that this may well lead to an industrial property boom in 2014/15. Of course with such a long gestation period for new developments to come to final fruition, the process needs to be kicked off now. Feasibility studies, surveys, finance – all of these things must be in place before actual construction can begin to take place.

From a national point of view, the South African government already has its policy in place and several IDZs, (industrial development zones), are already planned and underway. The private industrial property development market is also getting its house in order, and many new private developments are in construction with many more at the planning stage.

All in all this is now a very positive time for property development. Industrial property investors have every reason to be cautiously optimistic, as the short to medium term prospects are looking very positive, and now is the time to speculate and invest.

 

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