Fortress sees rental lift for refurbished offices
Fortress Real Estate Investments says demand for its refurbished office buildings in Bryanston is increasing as many occupiers return to the office, laying the way for rental increases.
“Though the office portfolio is noncore, and the endgame is to sell these assets, we continue to invest [in them] because selling a vacant building is a lot harder in the current environment,” Bruce Collins, head of asset management at Fortress, told Business Day.
Due to increased load-shedding, many tenants, especially smaller ones wanting to work closer to home, were attracted by the group’s revamped buildings with backup power in Bryanston, he said.
Companies also approach Fortress saying they would like their staff to return to the office but would like attractive and appealing environments.
The top five needs for an office space include security, backup power and water (Bryanston has frequent water outages), energy efficiency such as LED lighting, high-speed internet connectivity, and cafes for caffeine boosts.
With little appetite for office assets, aside from mainly owner-occupiers and those converting to residential apartments, Fortress said it would continue to spend on its buildings to achieve better value.
“Our philosophy is to fix the asset, fill vacancies and then sell to get fair value,” Collins said.
Fortress specialises in the logistics and retail property sectors in SA and also owns premium logistics assets in central and Eastern Europe. Its strategy is to build a two-thirds logistics and one-third defensive retail.
Last week, the group unveiled Wedgewood Office
Park in Bryanston, the first four office projects to be refurbished to meet occupier needs and demand.
Some of its office parks include 28 Sloane, Culross Court, Hobart Square, Northdowns Office Park and Parc Nicol’s Building 1. These properties are situated close to numerous amenities providing for an ideal work environment.
In all the four projects, Collins said Fortress had several engagements with tenants and brokers on what they need from office space. Revamping old buildings, adding energy-efficient lighting, painting, creating attractive outdoor and reception areas, enable the fund to attract and retain tenants.
Capex spend will differ as some offices already have backup generators and would require minor refurbishment and painting, for example.
At Wedgewood, Fortress spent about R8m, with the bulk on the addition of backup generators and water. Painting, the addition of soft furnishings as well as a coffee shop, have revitalised the asset.
Fortress introduced office staging whereby parts of the office were furnished to enable potential tenants to envision the use of the space be it an office, common areas or outdoor spaces.
Collins said that since the pandemic, “fresh air and wellness” are important for tenants. “The pandemic forced us to be innovative with the use of office space, and we are seeing strong demand for smaller spaces due to the hybrid work model.”
Though their buildings have spacious balconies and outdoor areas, these had been underutilised and the revamp has given the offices a new lease on life. “Due to this refurbishment, we’ve seen an immediate rental lift. This node has huge potential, and we think our rentals are very competitive,” Collins said.
Before the revamp, it was a struggle to get asking rentals of R105/m² to R115/m², but now rentals of R125/m² to R140/m² are achievable, he said.
Collins said Wedgewood Office Park is a “standout” asset in the area known for its premium-decentralised offices, as occupiers want to work closer to home instead of driving through traffic to, for example, Sandton or Rosebank.
There was high demand for offices measuring between 200m² and 300m², and up to up to 1,000m²from a broad range of users, he said.
Offices comprise less than 4% of the total group portfolio. Fortress has offices in Rivonia, Sunninghill and Paulshof. At end-December, the portfolio was valued at R1.5bn, with weighted average in-force rental escalations of 7.9%.
DUE TO THIS REFURBISHMENT, WE ’ VE SEEN AN IMMEDIATE RENTAL LIFT. THIS NODE HAS HUGE POTENTIAL.
Bruce Collins Head of asset management, Fortress Real Estate Investments