Why more industrial property sellers are embracing auction as a preferred sales method

Source: Supplied. Wesley Cowan of Galetti Corporate Real Estate.

The high demand for industrial-zoned land is a key driver in the industrial market and the reason for low vacancy and high rentals. “There’s a substantial demand for industrial-zoned land, especially in the Western Cape and Durban,” says Wesley Cowan, director of Galetti Auctions.

This demand, coupled with the extremely low vacancy rates in Johannesburg, the Western Cape and Durban, creates a high demand-low supply scenario, making auction an ideal sales method. “Why settle for the first price, when you can secure the highest price?”

The Rode Report (2024:2) noted that industrial properties remain the top-performing category among the three major asset classes in South Africa. The report added that this segment continues to impress, with sharp nominal rental growth amid continued low vacancy rates.

“In addition to low vacancy rates, these properties are generally easier to maintain (in comparison to retail and office space) and typically require minimal tenant improvements,” Cowan explains.

Opting for auction

Auctions provide a streamlined sales process, ensuring prompt transactions that align with sellers’ needs.

“Competitive bidding generates urgency among buyers, leading to quicker sales and closing timelines,” highlights Cowan. Auctions also offer unparalleled visibility for commercial properties, reaching a wide pool of potential buyers through extensive marketing campaigns. This larger buyer pool drives competition, potentially resulting in higher sale prices.

The transparent price discovery process facilitated by auctions is another major advantage. “The competitive nature of auctions often drives the price beyond the seller’s expectations, maximising the return on investment,” Cowan points out.

Auctions also eliminate the uncertainty associated with traditional negotiation-based transactions, as buyers participate with firm intentions to purchase. “Non-suspensive contracts ensure a secure and straightforward sales process, reducing the risk of deals falling through,” he adds. Furthermore, auctions offer sellers the ability to tailor terms and conditions to their specific needs and objectives, providing flexibility in achieving desired outcomes.

In the face of high interest rates and the pressure they exert on commercial real estate portfolios, auctions have emerged as a quick and effective solution for sellers. “By employing proper market analysis, strategic reserve price setting, and comprehensive marketing strategies, sellers can avoid risks and harness the power of auctions to achieve successful outcomes in the current market.”

What industrial property buyers want

Cowan highlights top considerations for industrial assets as follows:

• Consider your location. “Proximity to major transport routes, ports and distribution hubs is of importance to major suppliers and manufacturers.”
• Zoning for industrial use. “A property must be correctly zoned in compliance with local regulations, including environmental and safety standards.”
• Accessibility. “For many large-scale industrial businesses, having ample space and accessibility for heavy vehicles and machinery is paramount,” he says. “Extra space also leaves room for expansion in future.”
• Well-maintained facilities. “Whether you’re a buyer or a seller, a well-maintained industrial property is a must.”
• Security and solar. “Whether it’s solar or inverters, back-up power is a must for always-on industrial operations. In addition, security and controlled access is a top priority.”