Logistics is the property ‘darling’ of the market
Boom in e-commerce, spurred by lockdown, driving sector’s growth
● The logistics property sector, which is the indisputable favourite of investors both globally and in SA, is expected to be the next big battleground for local real estate players looking to diversify away from the weaker retail and office segments.
The sector, which primarily focuses on storage and distribution warehousing, has boomed in recent years due to the growth of e-commerce. Now with Covid-19 expected to accelerate the adoption of e-commerce in SA and worldwide, some property company counters are nicely poised for growth.
Andrea Taverna-Turisan, CEO of JSE-listed logistics property group Equites, says there is no question that the “sector that we’re in is the darling of the market” and that competition for property in this segment is only going to increase. The group, which owns and develops logistics properties in SA and the UK, has an extremely low vacancy factor of 1.4%.
Taverna-Turisan says competition for logistics real estate is not just going to come from other listed property companies.
“All the private developers like Abland, Atterbury, JT Ross, Zenprop and Improvon, you name it, we’re all competing for that pie. SA is not growing that much, so your few client opportunities are around people wanting to go to that next level, who are wanting to bring efficiency and consolidation into their operations.
“Then it comes down to price and who owns land in the area, that makes sense for the client because you can’t have land in every location. Some clients need to be in east rand, some need to be in the north rand, some need to be in the south. You can’t hold tracts of land everywhere. You tend to make decisions about where you feel most deals will come and that is where we hold land for development opportunity.”
Taverna-Turisan believes retail, offices and even older traditional industrial stock segments are “going to be under pressure in the short term”, which will also continue to fuel interest in the logistics sector.
He says another contributing factor is that
Covid-19 has “accelerated penetration of ecommerce by five years”. Referring to the UK specifically, Taverna-Turisan says market experts “reckon we’ve done in three months what would have naturally taken five years”.
“Habits have been changed. A lot of people who may not have bought online are buying online now.”
The group listed on the JSE in 2014 with a R1bn portfolio. By the end of this year it will have close to R20bn in assets. Its tenants include Danish transport and logistics company DSV, DHL, Nestle, PepsiCo, Super Group, Pick n Pay, TFG, Puma, Tesco, Amazon and Imperial Logistics.
JSE-listed Fortress, which has about R10bn of its R30bn fixed property portfolio in the logistics sector, says this segment is definitely “looking good” and has fared much better than the broader retail market, which was most severely hit by the lockdown. Its own recent deals also reflect the new online reality created by Covid.
“The two biggest deals we’ve done post-lockdown, and maybe it is purely coincidence, but we signed a deal in Cape Town, about 16,000m² let to a Netflix production company, and we signed a deal, 7,300m² let to Takealot,” says CEO Steve Brown.
“We’ve also just signed a sales agreement with a data centre to buy some of the land in one of our logistics parks. Although we had those deals on the cards anyway, it’s quite telling when you look post-lockdown at the three biggest deals we’ve done. This is the new normal.”
The group also has rural and township retail centres valued at R10bn, which it says have been very “defensive” during the Covid-19 lockdown, as well industrial properties and offices.
It also owns a R12bn stake in Eastern European-focused property group Nepi Rockcastle. While it intends keeping the rural retail portfolio, the group plans to dramatically increase the size of its logistics focus to constitute two-thirds of its portfolio in three to five years. “We have just over R3bn (of logistics space) under development now, with a pipeline of another R5bn to come,” which Brown says equates to about a million square metres.
“It does depend on the market. We’re not going to do something silly and just start flooding the market with too much space because that will be self-defeating.
“We are seeing good demand. We are doing a lot more developments for guys who want to own their own properties and so we are also striking deals where we own the property 50-50 with the tenant.”
The group’s vacancy factor in its logistics portfolio is sitting in the “low single digits”, Brown says.
Galetti Corporate Real Estate said in a statement this week that industrial property had “seen a noticeable spike in activity”. This was due to “the stringent hygiene measures now required in the workplace and the changing nature of retail”, said the group’s Western Cape regional head, Clint Marais.
Marais said e-commerce retailers and personal protective equipment manufacturers need distribution centres and two recent independent requests came from large pharmaceutical businesses looking for “significant distribution centres in the country’s major port metropoles”.