Fortress Reit is developing Eastport Logistics Park at an estimated cost of R4.4bn on completion. The flagship asset is located in Gauteng’s prime logistics node northeast of the intersection of the R21 and R25.
Pick n Pay is relocating its distribution centre in Longmeadow to the park in May 2023, taking up 165,000m2 of gross lettable area, with an option to renew its 15-year lease agreement.
“We continue to see growing demand for logistics and warehousing facilities in secure parks, especially from tenants in the food, healthcare and fast moving consumer goods space,” said Bruce Collins, an asset manager at Fortress Reit.
Collins said construction of the Pick n Pay distribution centre is under way. When completed, Pick n Pay would purchase a 60% undivided share in the property with Fortress owning the balance.
“We will achieve an agreed yield of 7% on completion with appropriate compensation for the funding and development risk,” said Collins.
Fortress is a JSE-listed real estate investment trust (Reit) specialising in the logistics and retail property sectors. It owns 53 shopping centres in SA and holds a 23.6% stake in Nepi Rockcastle, which has operations in central and Eastern Europe. Its SA logistics portfolio was valued at R10bn and its central and Eastern Europe logistics portfolio at R1.5bn.
About five years ago the company had over 2-million square metres of development land, of which about a third is still available for development. Fortress’s current developments exceed a million square metres, with costs of about R2.6bn in Gauteng and KwaZulu-Natal, making it the biggest logistics developer in SA. These include its Gauteng logistics park Louwlardia, Longlake and Eastport, and in Durban its flagship asset Clairwood and Cornubia.
Collins said Fortress initially looked at redeveloping old facilities, but the model was not financially viable. Strong partnerships have unlocked value, enabling Fortress to access strategically located land for developments.
Fortress is targeting R1bn in sales to fund development pipelines. It has over 700,000m2 of old industrial buildings to be sold, he said.
In March, Fortress concluded its R1.25bn partnership with Inospace, SA’s leading owner and operator of branded business parks. The deal launched with an initial portfolio of 20 industrial properties in Cape Town and Johannesburg offering a combination of warehouse, logistics, storage and work space. Fortress contributed 12 multi-let assets, with Inospace contributing the balance.
Collins said Fortress aims to have about two-thirds of assets being logistics, with a third comprising retail assets, in about three to five years when all developments in SA have been completed.
Jason Cooper, head of developments at Fortress, said demand for modern logistics and warehousing facilities in prime secure parks exceeds supply. As a result, Fortress is achieving premium asking rentals in new buildings of up to R72/m2 net, with lease lengths of about three years.
Vacancies are below 2% within the portfolio due to limited supply, thus giving the company an opportunity to increase rentals. Fortress is getting about 2.3% on lease renewals.
“Security and building compliance are key priorities for tenants when looking for logistics,” said Cooper. Parks like Eastport have 24-hour security and central fire tanks and pumps for fire protection compliance.
The first building at Eastport was completed in 2018 and, to date, more than 95,000m2 of gross lettable area is ready, he said. More than 183,000m2 is under construction at Eastport including a speculative development.
Cooper said developments are both tenant-led and speculative. There is increasing demand for logistics space of 10,000m2 to 20,000m2 in size. Tenants are looking for facilities that will enable them to maximise space, with room for expansion.
Building long-term relationships enables the company to retain tenants. Many tenants start by leasing a small space and, as their businesses grow, they move within the portfolio or within the park to accommodate its operations. To retain tenants, Fortress offers incentives including rent-free periods and tenant installation.
Eastport offers easy access to arterial routes and to OR Tambo International Airport. Tenants include Pick n Pay, Teraco, Teralco, Savino, Takealot, Clippa, On the Dot and a speculative warehousing development.
Fortress continues to enter into joint ventures with tenants and has sold a 50% undivided share in the new Clippa development at Eastport to the tenant at a 1% compression on development yield.
“We believe that selling a portion of the building to the tenant firmly entrenches them in the asset and contributes to the sustainability of the underlying cash flows,” said Collins.
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