High-tech warehouses and distribution centres are fast becoming the most sought-after property assets in SA, with listed counters and private groups positioning themselves to benefit from future growth in online shopping and companies establishing supply chains.
Industrial vacancy rates have dropped sharply across SA, largely thanks to the logistics sector supporting rental growth on lease renewals. It indicates growing demand for well-located high-spec warehousing and distribution centres.
The latest industrial vacancy report of the South African Property Owners’ Association (Sapoa) shows that as at the end of December the overall national vacancy rate was 3.3%, down from 5.3% at the end of December 2016.
Sapoa data show that high-tech industrial vacancies were as low as 1.1% at the end of December 2017, up slightly from 0.7% at the end of December 2016. Vacancies at warehouses were 4% on average at the end of December 2017 compared to 5.3% at end-December 2016.
The national office vacancy rate as recorded by Sapoa was 11.5% at the end of March.
Strong rental growth
Redefine Properties industrial asset manager Johann Nell said that the average rental growth for logistics assets was 8% in 2017. This was much stronger than office rental growth, which averaged about 3.1% and had dropped to 2%, Sapoa data show. Rental growth in retail properties was on average lower than 4% and in some cases landlords were forced to accept reversions in rentals or face losing tenants.
"Many funds are looking to invest in or develop new logistics assets because their returns stand out compared with more established assets classes," said Phil Barttram, vice-president of Investment Property Databank SA, which collects the largest amount of real estate data in the country.
"South Africa is largely overshopped, which weakens the case for new retail centres, and demand for new office space is subdued. The operational requirements to own and manage residential property on a large scale remain barriers to entering that asset class," Barttram said.
Investors had already been rewarded for investing in logistics assets and Barttram expected this to persist.
Both retail and industrial properties achieved an average total return of 12.3%. However, retail was slightly ahead. The office sector managed a total return of 10.3%.
Total return includes income and capital growth.
High-tech logistics property also stood out at a specialised asset level, Barttram said.
Logistics played a significant role in the sector’s performance, achieving a total return of about 14% in 2017.
This was better than super-regional centres, which delivered 12.9%.
Owner-occupier demand was also outweighing lease-driven demand at logistics assets, particularly by international operators who were setting up supply chain operations in SA, Nell said.
This had prompted listed groups to buy or develop warehouses in joint ventures with the occupiers of buildings.
Panico Theocharides, a director at property advisory Tenurey BSM, said listed funds that may not have been invested in logistics before would be able to draw from the specialised management skills that private companies had through these joint ventures.
Pranita Daya, an analyst at Anchor Stockbrokers, said that high-quality logistics properties were likely to offer consistent returns for a number of years because online shopping and e-commerce in SA had scope to become more advanced.
The number of online shoppers in SA was expected to increase by about 35% from 2017 to 2021, based on Statista and e-commerce data, she said.
"Logistics is definitely the most future-proof of the asset classes, particularly considering the prolonged downward trend in the office sector and the renaissance required from the retail sector to a more experience-based offering," Daya said.