Strong demand for older industrial properties

Older industrial properties in some localities continue to attract occupiers seeking lower rentals as newer stock is pricey.

The need to hold more stock is resulting in many occupiers seeking new space or taking additional space, said Bruce Collins, head of asset management at Fortress Real Estate Investment.

“There is still strong demand for well-located smaller industrial units and interest from buyers for multi-use industrial parks,” said Collins.

Fortress’ industrial property portfolio saw rental increases rise from 6.8% in June to 7.8% at the end of October. Of the 43,837m² vacancies, more than 23,000m² comprises office space with the bulk of this in Spartan and Isando in Gauteng.

Collins said Inofort, a joint venture portfolio with Inospace, continues to attract tenants resulting in good net operating income growth. Inospace, which manages the portfolio, is an unlisted property company that converts old industrial buildings into smaller logistics facilities for small and medium enterprises.

Inofort launched in March 2022 with a R1.25bn portfolio of 20 industrial properties, offering a combination of warehouse, logistics, storage and workspace. Fortress, which holds a 51% controlling stake, initially contributed 12 multi-let assets and Inospace the balance.

Since launching, Inospace has focused on implementing an optimisation strategy to extract value. Fortress spent more than R50m on the optimisation process, which included rebranding under the Inospace model, reconfiguration of buildings, fitting out of business hubs and creating additional space.

“We are getting better rentals and returns from these assets — and we have budgeted to see a roughly 20% increase in the bottom line.”

WE ARE SEEING GOOD DEMAND FROM INVESTORS AND OWNER-OCCUPIERS, AND WE ACHIEVE GOOD PRICES Bruce Collins

Fortress Real Estate Investment asset management head

Collins said they are rolling out solar to properties in Cape Town and Gauteng as tenants continue to seek secure buildings, backup power and water — and high-speed internet connectivity.

Fortress is selling some of its older industrial buildings and offices as it aims to become a logistics and retail-focused fund. It now has fewer than 40 older industrial assets and while Collins didn’t dismiss the idea of adding some of these to the Inofort portfolio, he said it getting the best price and maximising shareholder value is a priority.

In its trading and pre-close update for the first half of 2024, Fortress said that after the 2023 financial year-end it had realised R883m in net proceeds from disposals with a combined book value of R665m.

The company sold land, noncore logistics, industrial and office properties. Five more with a book value of nearly R375m are held for sale. Collins said logistics assets were not initially for sale. However, the company now regards smaller logistics as noncore.

“We are seeing good demand from investors and owneroccupiers, and we achieve good prices for these assets.”

He said owner-occupiers pay premiums for these assets as they look at the investment from a replacement cost basis rather than the yields on which investors focus.