From the Directors Desk: Leon Rass - Durban

Whenever my colleagues from our offices in the Cape or the Highveld call, they often ask the question: "So how is the market in Durban?" The first word that usually pops into my head is: "Volatile." On face value, the word "volatile" seems to be a perfectly acceptable and particularly succinct description of the general state of affairs in Durban over the previous 24 months. A pandemic, rioting, looting and a severe flood seem to fit the very definition of the word.

How a set of circumstances "feels" however can be markedly different to how things truly are. This is particularly apt in this case. Upon unemotional analysis, the Industrial Property Market in Durban doesn't fit the definition of the word volatile at all. In fact, this category of property has proven itself to be remarkably stable and robust. The best indicator to interrogate in this regard is the trajectory of median rentals over the last 6 months. Not only have rentals not receded, in the case of property with strong fundamentals, industrial rentals have moved upward in greater Durban.

The statement requires some substantiation. Supply of industrial space in the medium term is severely depressed due to the events of the previous 24 months. The incidences of arson during the unrest removed substantial amounts of square meterage from the market and the floods exacerbated the situation. The prevailing scenario prior to the unrest was that of a shortage of industrial space actively in the market. The unrest and floods have made this shortage acute. In short, Landlord's have seen increased competition from Tenant's for an ever-decreasing pool of available properties. The equivalent can be said for Seller's. The pricing they have been able to achieve over the last 6 months bares testament to this.

Our internal statistics support the assertion that general demand ( enquiries for and uptake of industrial space ) has remained constant. The same topology that makes Durban prone to mudslides, is the same aspect that made it a preferred location for South Africa's largest port. South Africa's increasing reliance on the importation of finished goods because of the slow dying out of local production capacity is well documented and lamented by all of us. This reliance means that the port of Durban, which services the majority of our imports from the east, is critical to the country's economy. Keeping demand and competition for industrial space in the region healthy. Because of the saturation of the areas immediately surrounding the Port, a natural expansion up the N3 highway corridor has increased in pace over the last 5 years or so.

The unrest has impacted the thinking of businesses across the board, on multiple levels. One such example is that prior to the unrest, we had noted that businesses with national distribution supply networks had been partial to consolidations of their operations along the N3 highway corridor. Examples of this are the establishment of major distribution centres for the likes of Mr Price, Ackerman's, PEP, Baker's Logistics and Value Logistics to name a few. This thinking has been altered by the unrest, in so far as a centralized approach to a business' supply chain simultaneously increases risk in terms of functionality when civil unrest is taken into account. Whereas this risk is spread when maintaining multiple facilities with overlapping functionality. This risk mitigation coming at a direct rand cost and a secondary loss of efficiency. In the short term at least, business seems to be tolerant of the higher cost structure.

I speak of the general demand having remained constant but it is similarly evident that the unrest and then the floods disrupted local supply chains severely. Resulting in bottle-necks in supply chains that required short term warehousing solutions. Our view being that the short term "spike" in enquiries for space is not fairly viewed as indicative of the general, underlying strength ( or weakness ) of demand for space in the industrial market but rather that the volume together with the nature of the enquiries and uptake of industrial space over a reasonable period is a more accurate measure. These levels showing stability and resistance to short term shocks.

In general overview our major Landlords find themselves in a scenario where their portfolios are fully let or experience marginal vacancy. For all the talk of catastrophe, where all and sundry bemoan the perceived state of the economy and the fiasco that our politics is at the best of times, it seems that the reality is definitely not as bad as some would want you to believe. It may be true that demand for industrial space is the proverbial canary in a coal mine with regards to the general health of the economy and with that in mind, the indicators tell us that economic activity is steady and robust if not spectacular. The canary is still chirping away...

LEON RASS