Industrial sector growth is heating up as scramble for available space intensifies, says Redefine

Johannesburg, 17 March Bottlenecks of supply caused by the Covid-19 lockdowns are easing, opening the door to exciting commercial sector property growth. But national asset manager for industrial at Redefine Properties, Johann Nell, says the market looks very different today, raising the stakes for operators to think outside of the box.

With the capital costs of relocating high, logistics companies, for instance, are looking for a better deal. Instead of just renting one ‘box’, they want a facility that includes add-ons and technology like racking and other supply chain components, as well as more climate-friendly and secure solutions. There is then one product accessed at one venue and then taken to their customer,” he says.

Some tenants also want a vested interest in the properties they rent. Nell explains that some show interest in purchasing the warehousing facilities later in a lease, while others prefer a joint-ownership model.

Historically, a landlord would rent out a warehouse and leave the internal design and kitting out to the tenant.

Nell says logistics companies are increasingly looking to allocate their capital differently, rather than tying up large up-front amounts of working capital into racking, shelving and design. Demand for space in the 10,000 square metre space and above is heating up significantly, with limited stock leading to high levels of competition.

“There is a bit of a scramble for available space as supply chains open up after Covid-19 induced lockdowns. However, scarcity is also leading to more building activity and innovation,” he explains.

For Redefine it has grabbed an opportunity to convert and retro-fit existing facilities to meet the growing needs of logistics and other industrial clients.

“The industrial sector was resilient during Covid-19 and it is now the flavour of the month, backed by the rebounding growth in the retail sector. There is clearly a growing need for storage space as commercial companies look to keep more inventory,” says Nell.

Nell says an important fillip for the economy is that manufacturing activity is also showing signs of recovery. He says growth in manufacturing bodes well for the economy as this a key engine room for jobs and sustainable business growth.  “There are new opportunities to provide more tailored solutions for manufacturers, especially after the recent riots across KwaZulu-Natal and Gauteng,” he says.

A major trend is e-commerce driving warehouse consolidation and supply chain expansion, which is increasing demand for new racked warehousing space. Another major trend is smart-tech systems enhancing tenant user experience, Nell says all of these developments mean serviced, developable land remains in high demand.

According to COVID-19 reflected notable changes in retail in South Africa, namely, with a shrinking brick-and-mortar market and accelerated store closures, the B2C e-commerce market grew by more than 60 percent from 2019 to 2020. In addition, there was a nearly ten percentage points increase in online shopper penetration in the country from 2019 to 2020. Mastercard has also reported that online retail in South Africa more than doubled in just two years, thanks to the explosion in demand for home deliveries brought about by the Covid-19 pandemic.

Improved sentiment in manufacturing is mirrored in recent statistics, with purchasing managers more optimistic about the coming months. A gauge tracking expected business conditions in six months’ time jumped to an almost four-year high of 71.3 points, more than ten points above last year’s average reading, according to media reports. In the aftermath of the July riots in Durban and disruption in KZN logistics sector, Nell says there was a demand for short-term warehousing in Gauteng. However, not all companies have been able to relocate due to the costs involved.  “So what we are also seeing is increased demand for value offerings – not just a building but a greener building, with solar panels on roof, and also for enhanced security. Demand for space in KZN remains solid,” he says.

Global trends also indicate exciting potential ahead. According to CBRE, amid record demand in the US, rent growth and investment activity, industrial real estate “will stay hot in 2022”. E-commerce’s expansion will fuel the need for more warehouse space, as will the growing economy, population migration and the desire for “safety stock” onshore.

Interesting trends in EMEA are also taking shape. BRE surveyed over 100 of the largest logistics occupiers in Europe to gain insights on their expansion plans, current challenges, location and building preferences and the impact of COVID-19 on their real estate strategies.

Nell says based on these trends Redefine continues to protect, refine and improve its portfolio, with several projects earmarked for rollout. “We have embarked on a technology drive to make it easier for end users to manage their businesses and giving them the flexibility to structure the facility to suit their operation.

“We will continue to allocate capital where we believe the best market opportunities lie, while participating with other development firms to offer customised and creative development solutions, either through improvements to existing premises or through greenfield developments,” concludes Nell.

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