South Africa’s industrial property market has seen an increase in activity that rivals the retail, leisure and office property sectors. Despite this, the industrial property market has been affected by the coronavirus lockdown, much like other sectors of the economy.
The industrial property market relies on international trade and with global borders closed to prevent the spread of Covid-19, the long-term effects of the pandemic on the industrial property market have yet to be established. However, in the short term, the industry has seen a surge in activity.
According to Investment Property Databank (IPD), a researcher group from the UK, in 2014, South African investors made more returns on their investments in commercial real estate than investors from other countries.
In recent times, the rise in activity in the industrial property market can be attributed to the increasing demand for personal protective equipment (PPE), as PPE manufacturers and pharmaceutical companies seek distribution centres.
Added to this, the current state of the economy is resulting in many industrial property owners needing to sell their properties in order to recoup costs, creating the perfect opportunity for investors to buy at great prices.
So, how does one go about investing in industrial real estate?
1. Reflect on your affordability
Before seeking to invest in an industrial property, examine your finances and investment portfolio to determine whether you can actually afford the investment. Buying property often comes with hidden costs, so make sure you have enough disposable income to pay for any expenses that may pop up along the way.
Seeking guidance from your financial adviser is also a good step to take prior to making the commitment.
2. Do your due diligence
It is important to do as much research as possible before purchasing an industrial property. Consider the following:
● The area in which you will purchase the property. Make sure the area is relatively safe and is easily accessible in terms of being close to amenities, road access and transportation. Buying property in a crime riddled area or an area that is difficult to access will not be profitable.
● The condition of the property. Make sure the property isn’t falling apart. You should only accept minor things being out of order, as it will be relatively cheap to repair. You also need to make sure the property meets all your needs, or is at least easy to customise depending on the tenant’s requirements.
● Find out about the service delivery in the area. Owning an industrial property in an area with poor service delivery will have you running at a loss. Electricity, water, waste removal and sanitation are integral to the running of an industrial property.
3. Be prepared for a stringent application process from the bank
Applying for an industrial property is much more strenuous than applying for a residential one. The application process involves a lot of red tape, including questions about how one’s wealth was acquired, an assets and liabilities statement, a copy of a signed deed of sale, copy of company documents, signed and audited financials, amongst many other things.
Make sure you understand what is required from you and prepare the necessary documentation. This process also requires a great deal of patience and persistence, so don’t be discouraged if it seems difficult to finalise your property deal at first.
4. Be open to negotiation
Always negotiate so that you can get the best possible deal.
5. Make sure due processes are followed
Before finalising your purchase, you must make sure that the building you’re purchasing is compliant. Ask to see the necessary certificates, title deed as well as other documents that prove that the building is safe and complies with the law.
Ask for any copies of leases if tenants are currently renting the space.
Although the process of investing in an industrial property can feel drawn out, you can get a good return on investment if you make informed decisions. Current market conditions make this a good time to invest in the industrial property sector, as seen by the recent spike in activity.