Industrial property sector resilient in Q1 2021

The industrial property sector performance remained resilient in the first quarter of 2021 on the back of 1.5% growth in GDP in Q4 2020.

Michael Scott

Research by JLL shows that segments such as logistics and distribution fared well, with growing activity in the telecommunication and data centre space.

JLL Sub-Saharan Africa research analyst, Michael Scott, says that industrial property activity was mainly driven by the e-commerce boom. “However, the market has a limited supply of quality assets, hence the property fundamentals remain strong.”

Industrial property was reportedly a sought-after asset class in 2020 and is set to continue in 2021.

Demand for modern logistics and warehouse units is increasing, as various sectors of the economy anticipate market recovery beyond 2021. This is according to Johann Nell, industrial asset manager at Redefine Properties.

“Redefine is refurbishing some of its older warehousing units to improve functionality to meet the appetite for innovative assets. Well-located and efficient industrial property assets remain key in a cost-sensitive market,” says Nell.

In its six months results, Redefine’s total active vacancy rates are 7.1%. Warehousing and logistics recorded the highest vacancy rate of 11.9%, whereas HiTech industrial recorded 4%.

He says that R11.3m was spent on Covid-19 rental relief with tenant renewal rate reaching 42.2% excluding monthly leases.

“Due to the impact of the pandemic, in some instances, we have restructured leases where rentals were above market levels.”

Another key trend in the industrial property sector is price sensitivity. This is driving down market rentals, as tenants search for cheaper space and smaller facilities, points out Nell.

“There will always be a segment of the market that is price centric, looking past functionality and operational efficiencies in an attempt to drive the cost of occupancy down.”

According to Nell, the cost of a new generic warehouse ranges between R7,500/m2 and R9,500/m2. This price would be for 8 metres clear height to eaves, limited but functional yard space and a warehouse that has a dedicated fire sprinkler system.

Currently, the older industrial nodes offer rentals ranging from R25/m2 to R35/m2. Decent warehousing space rentals range between R50/m2 and R77/m2. Bespoke space will achieve higher asking rentals due to the value-added enhancements of such facilities.

Rise of express logistics

The safe delivery of parcels, also known as express logistics, is growing fast in highly densified residential nodes in metropolitan areas. Parcels are delivered directly to a customer from a sender through a third-party logistics service provider’s individual network of delivery agents.

Image by Markus Spiske, Unsplash

Express logistics has a relatively low barrier to entry. Light delivery vehicles, motorcycles, and in future, even drones can be used as method of transport in order to lower both delivery costs and carbon footprint.

“We expect to see express logistics as a function and occupier of shopping centre space in future, as well.”

Investments

To meet the demand for quality industrial property assets, Redefine Properties works closely with industrial engineering and logistics design experts to keep up with current and future trends.

Johann Nell

Some of the elements include better industrial floors, higher eaves and more energy-efficient installations. “This will help us move towards improved sustainability in order to lighten our collective carbon footprint,” says Nell.

Its industrial property portfolio has a national footprint of warehousing and logistics assets measuring +920,000 m2 in size.

The company has been adding to its portfolio through new developments that house clients such as Massmart, Sparepro and Pepkor.

In line with its strategy to improve its assets, Redefine said the bulk of local development spend will go towards expanding logistics. To this end, R221m has been allocated for industrial property developments.

Nell says, when acquiring assets, they look for quality, efficiency and locations that have solid infrastructure to reduce the leasing risk. In December 2020, Massmart took occupation of the 52,601 m2, Brackengate 2, in the Western Cape on a 15-year lease.

Another new industrial property development completed in January 2021, is the 8,812 m2  Brackengate also in the Western Cape.

 “We continue investing in our industrial portfolio to meet changing preferences brought about by automation, consolidation and business rightsizing to maintain and improve operating margins.”

In the short-term, Redefine’s industrial property portfolio net asset value has increased only marginally, by 1.8%. However, the company is experiencing increasing enquiries for their available warehousing units amid post-pandemic lockdown market recovery, according to Nell.

Edited by Gudrun Kaiser

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