Are rentals cheap today

Nathan Brajtman of Diamond Properties is of the opinion that our rental structures are cheap today relative to what developers will need to achieve for new developments. Brajtman is advising tenants to renew their leases for as long a periods as possible at the current rental levels. Brajtman says that if you take the average land price of industrial land at R1250 per m2, a coverage factor of 50 percent and a building cost of warehousing at R3500 per metre squared then development cost equates to R6000 per metre squared. At this level an investor who would require a 10 percent return needs to achieve a gross rental of R50 per m2. This is what it will cost to develop a basic warehouse without accounting for the office component. With the increase of steel having gone up by 40 percent since January 2008, the increase in petrol pricing and inflation this could push rental prices up further as the cost of developments escalates. As rentals are not presently in line with returns required on new developments Brajtman says that there will be an increase in demand for existing properties at current rental pricing which will create a demand pull effect on rentals of existing properties. Brajtman is of the opinion that we due to the costs of new developments existing CBD building which are C grade wil be upgraded to B and A grade to facilitate the demand. The effect of Eskom also holding back now on quoting on new developments will further push rentals on existing buildings. Brajtman says that we are already seeing rentals of R200 per metre squared for A grade offices and R50 per metre squared for new industrial buildings. He is of the opinion that if you are leasing premises to renew your leases now for as long as possible.

For further advise or if you are looking to sell or rent premises please do not hesitate to contact Brajtman at Diamond properties on 021-4340001.