Is the Industrial market the booming sector?
Category Editorial
The Industrial and retail activity ratings have both improved post-lockdowns however only the industrial sector has managed to recover to an activity rating above its pre-lockdown first quarter 2020 level, this is according to a recent FNB's Property Broker Survey of Rental Market Conditions
At the start of the pandemic, many had suggested the demand for warehouse and industrial space was attributed to the increasing demand for personal protective equipment (PPE), as PPE manufacturers and pharmaceutical companies seek distribution centres. Many had also suggested that smaller retailers had closed their storefronts and opened factory shops alongside their manufacturing warehouses.
According to a recent article on propertywheel, it stated that the strength in the industrial property market, and declining vacancy rates is interesting, given that the economic sectors are key to influencing industrial property performance which have not all been returning strong data. During 2020's final quarter, manufacturing GVA (Gross Value Added) growth was still -2.01% down year-on-year.
Manufacturing capacity utilisation in the final quarter of 2020 was at a lowly 79.3%, down from 83.1% at a stage back in 2018 and far below the days of around 87% back in the pre-2008 economic 'boom' years. And while square metres of industrial space plans passed have declined sharply since 2018, a positive from a point of view of curbing oversupplies in future, recent new space completions remained significantly 'elevated'.
In addition, quarterly GDP data has been recording sharp drops in economy-wide inventory levels through 2019 and 2020, a typical trend during weak economic and recessionary periods, but something that would likely dampen warehousing demand if anything but perhaps the brokers are experiencing early signs of the start of a re-stocking of inventories through the economy, driving manufacturing back into growth territory, resulting in expansion plans by some.
The one up to date leading indicator pointing to some strengthening is the Manufacturing Purchasing Managers Index (PMI) New Sales Orders Sub-Index, which has risen markedly in the last three months to a healthy level of 60.4. a level well back into 'expansionary' territory (50 being the dividing line between expansion and contraction).
The property broker survey for industrial property may be reflecting what the most recent Manufacturing PMI readings have been telling us - that stronger times are at hand.
While Rode data showed industrial property year-on-year rental inflation nearing zero late in 2020, the most recent broker survey suggests the possibility that industrial rental growth is drastically on the rise and this is indeed the booming market
Author: Spire
