Logistics and industrial property demand still on the up

The industrial and logistics property market is the topic up for discussion in this latest episode of The Property Pod.

Leading commercial real-estate services company JLL recently published a report which essentially is a logistics and industrial market overview for South Africa. The report says that the development of especially logistics properties has gained significant momentum countrywide over the past 10 years or so.

Joining me on this podcast is Mieke Purnell, JLL’s research manager for sub-Saharan Africa, to give us some insight on what’s behind the increasing demand and better performance of industrial and logistics properties in South Africa.

Highlights of the interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts. 

Equites Property Fund, Equites, Logistics property market, JLL

A precinct in Cape Town owned by JSE-listed Equites Property Fund, one of the most active players in the logistics property market. Image: Supplied

What’s behind the boom in the industrial and logistics property market over the last decade or so?

“I think there are a couple of factors, but we can reasonably narrow [them] down to about three main drivers, being the advancements in technology, growing e-commerce, and then supply-chain optimisation.”

“The last two that I mentioned in particular came to the fore in 2020 due to the Covid-19 pandemic and made businesses realise that they need to invest in their supply chains and their storage and distribution systems now, in order to futureproof their businesses.”

“New technologies have changed inventory management systems, allowing retailers and manufacturers to more efficiently store their products, while the rapid uptake in e-commerce in South Africa has meant that retailers need to have more easily accessible and distributable inventory on hand.”

Read: Supply chain pressures now worse than during Covid-19 peak – PwC

“So then finally the third thing – the global [situation]. There was massive disruption to global supply chains over the last two-and-a-half years, where shipping and manufacturing in general just became so much slower and less reliable.”

“So, a lot of local businesses had to step up to fill supply gaps and sort of onshore manufacturing and their production where possible.”

“Logistics is definitely growing faster than your conventional industrial property.”

“I don’t want to say that your industrial property sector isn’t growing, because there’s definitely demand for manufacturing and sort of older stock [in which] to store commodities and that kind of thing. But the primary growth sector is definitely your logistics subsector.”

Is it pretty much the big three hubs of Joburg, Cape Town and Durban getting most of the investment coming into this sector?

“Yes. You are spot-on. So [it’s] essentially locations around those three main ports that are easily accessible and have good links to transport infrastructure where we’re seeing most investment taking place.”

“In Joburg it’s sort of out along the R21 and towards Midrand; and around the airport in Durban it’s sort of the outer west area along the N3, which is also being upgraded. And then in Cape Town similarly along the N2 highway and R300 motorway is sort of where we’re seeing the most development and investment activity.”

“[This investment] is a mixture between private developers and then the big listed or unlisted funds. In a lot of cases there are actually sort of joint ventures between a Reit [real estate investment trust] and a private developer, such as in Brackengate in Cape Town; Redefine and VDMV Developers are developing that precinct together. So there’s a good mix between the two – listed and unlisted.”

What are some of the biggest industrial and logistics property developments currently on the go?

“You brought up Equites earlier, and they are definitely the biggest and the most active in the sector at the moment. They’re doing a lot of development, both tenant-driven and spec development. The tenant-driven stuff is the really big stuff that’s going on.”

“So, for example, Equites is busy developing a distribution centre of about 50 000m2 in the Witfontein/Kempton Park precinct. And then they’ve also recently announced that they’ve agreed [on] terms to develop another 85 000m2-odd property also in that R21 Kempton Park/Witfontein area. And then Truworths and Atterbury have also recently announced they’re planning on developing a 53 000m2-odd distribution centre near Cape Town.”

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Do you think the boom in development in the logistics and industrial sector is set to continue?

“Well, I’m not sure that there’s really a straightforward yes or no answer to that question. There are certainly factors that support growth and development in a sector. As I said in the report – and I’ll definitely reiterate now – there is a shortage of large logistics properties available, especially logistics that are considered to be in secure parks or in secure locations.”

“[Regarding] quality and the amenities in terms of your racking heights and that kind of thing, there’s definitely a shortage of that, meaning that any sort of occupier or operator that needs a modern logistics warehouse that is bigger than your 10 000m2 to 15 000m2 needs to reach a development agreement.”

“On the other hand, land and construction is becoming increasingly expensive and, given the global economic context at the moment, many business and capex decisions are being delayed, so that’s slowing down the pace of development a little.”

“And then also the e-commerce market in South Africa is growing, but it’s still a very minor component of overall retail trade sales.”

“Recently we’ve seen several retailers focusing on investing in their physical outlets and their physical offerings, rather than the online presence. So while there’s definitely still strong demand for accommodation in the sector, I’m not convinced that the development boom will continue to the same extent – definitely not over the next three or so more years.”

Older industrial hubs

“It’s definitely around the ports, the seaports and the airports that are considered prime locations. But what I also mean by ‘well located’ is that there’s a lot of – especially in Joburg’s southern region – older existing industrial hubs or nodes and precincts, and in fact in those areas there’s often a lot of high vacancies.”

“There are properties standing empty, but those areas are considered less appealing to investors and to occupiers because of the safety perspective, the congestion. A lot of the time those properties aren’t really suitable. They don’t have the right sort of yard area and that kind of thing.”

“So those are all factors that need to be taken into account when you consider the locality features of the site.”

Are there any other highlights from the report that you want to share?

“One thing that we can sort of mention is that in doing this research and putting that report together we also looked at trends that are happening over in India, in Europe and in sort of more established markets, and we are trying to see how South Africa is performing in relation to those markets.”

“It was actually very interesting to see that we are doing a lot, and the trends that are happening here are also happening overseas. So I don’t know if that’s necessarily a good thing or a bad thing, considering what’s happening abroad.

“But it is interesting to see that we’re not necessarily a sort of isolated, far away market anymore.”

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