Introduction :

Property investment as a whole has always been a preferred vehicle as one of the 3 pillars of ones’ investment portfolio in conjunction with stocks, bonds and cash derivatives. Some investors still prefer tangible investments even if the yield is slightly lower than alternatives.

In some instances a new investor will learn by trial and error of some pitfalls and pertinent information that may have assisted in their decision making processes.It is for this reason that we will attempt to keep the investor informed of issues that are regularly debated in our travels as commercial and industrial property brokers.

The Container Access Debate :

As the logistics industry is an organic concept and grows and changes to adapt to convenience and demand, it stands to reason how functional ability of industrial property is integral in the decision making process of a prospective tenant.

The number one criteria in the decision making process is the ability of the property to cater for access, loading and off loading of container type vehicles. This is understandable as the box or container is an internationally used mode of cargo handling.

If we consider the port as a separate animal altogether with its rules, regulations and restriction criteria in terms of leasehold ownership, we will need to focus on the freehold property falling within the acceptable perimeter of the harbour surrounds for our discussion.

The Umbilo and Congella Industrial Sector :

The demand for space is a byproduct of consumption. In the1980’s, the Umbilo area had multi-directional traffic flow on Gale Street, Umbilo and Sydney Roads which was considered in the access design for most properties and is noticeable by the curves of some building facades facing in the wrong direction to conventional traffic flow. This has adversely affected the loading/offloading and parking facilities of many properties. The changeover to container trucks as a preferred means of transport from the previously used rail system has created a surge in traffic congestion which is evident in Bayhead Road and South Coast Road at specific times of the day.

It has become acceptable to most, to offload containers on the street in proximity to their premises as most older properties are over-built in terms of their coverage, thus preventing the circulation required to handle container cargo on site.

The solution :

If we consider the rental rate being charged to house your logistics enterprise in the new River Horse Valley sector or within the leasehold sector of the port, it is acceptable to pay a reasonably elevated rental rate per square meter for a newly built structure incorporating a circulation configuration on the site for container traffic and loading/off-loading facilities.

With this in mind, to be closer to the port should command a premium for location as it is evident in the cost to the consumer of freight transportation in accordance to the zones allocated by the logistics industry.

Let us look at a hypothetical scenario of a 3 storey building in Umbilo situated on a 2000 sqm site and built to cover the entire site. Allowances have not been made for building lines etc.

Scenario 1 :

Let us assume the following;

Ground floor – 2000 sqm at R35/sqm

First floor- 2000 sqm at R16/sqm

Second floor 2000 sqm at R12/sqm

Thus our 2000 sqm site ( as land ) is generating R63/sqm in rental.

It is clear from this exercise that this site would be close to R115/sqm if a build cost of approximately R 4000 per sqm was estimated for a new structure as the services are already on site. Thus a non-viable option.

Scenario 2 :

Let us assume the following;

A single storey structure of 1000 sqm on the same 2000 sqm site

Ground floor 1000 sqm at R35/sqm

Thus our 2000sqm site is generating R17.50/sqm

If we rebuild a 1500 sqm facility at R4000 per sqm and assume it needs R40/sqm to service the funding and add our initial loss of R17.50/sqm , we can enter the market with a brand new facility with container access at about R 57.50/sqm and probably still have a good choice of tenants due to the location needs as stated above.

This exercise is merely a scenario to show that the conventional search for properties which produce percentage returns on investment are not the only opportunity that exist for the property investor. It would be essential however to consult with an accountant to identify the additional benefits of depreciation and capital expenditure for a development of this nature as well as holding costs once the sale and rebuild clause in a lease agreement has been initiated.

Kind regards