Inospace, the niche industrial sector specialist that caters to small and medium enterprises (SMEs), is looking to expand its operations into the UK, where demand for industrial and logistics space outstrips supply.
The company, which sees considerable growth opportunities in SA, is targeting growing an offshore portfolio of R500m to R1bn within the next three years.
“We have adopted a capital-light model of operating assets that we don’t own to enable our growth plans,” CEO Rael Levitt told Business Day.
Inospace is SA’s largest provider of a range of space with flexible lease options and value-added services to suit SMEs. It has R2.5bn in assets under management.
The company recently partnered JSE-listed Fortress Reit to unlock growth opportunities in the in last-mile logistics with 20 industrial properties comprising warehouse, logistics, storage and work space valued at R1.25bn. Last-mile logistics are smaller industrial spaces used by businesses as distribution centres to deliver goods and products.
Levitt said that at the height of the Covid-19 pandemic in mid-2020, Inospace took over the management of a logistics asset in Scotland, owned by one of its shareholders, as a pilot model for its offshore rollout.
“Despite strict lockdown restrictions, occupancies exceeded 95% with strong rental growth,” he said.
Inospace had planned to roll out 10 industrial parks in the UK in 2021 and 2022, but these plans were halted, and the group waited for the market to stabilise, he said.
Levitt, who visited the UK recently, said the demand for logistics space is growing and supply is limited. “[The] Lightyear [area] in Glasgow, Scotland, has shown us that there is demand for our last-mile logistics parks in the UK.”
He said Fortress’s presence in Eastern Europe, including Poland and Romania, will further enable Inospace to grow its operations offshore after the UK. In SA, the partnership intends growing the portfolio to about R10bn in the next three years in Johannesburg and Cape Town where there is big growth potential, with Durban on the cards for its local expansion.
Demand for prime logistics and warehousing space in the UK is high driven by e-commerce penetration and global supply challenges. Lack of land and rising building costs results in positive rental growth for these assets.
UK-based Industrials Reit, which offers multilet industrial (MLI) units, has also spoken of growing demand for space in the UK. The company intends acquiring £125m in assets to grow its portfolio in the next four years.
JSE-listed Sirius Real Estate, a leading operator of branded business parks providing conventional space and flexible workspace in Germany, entered the UK market in November 2021 after buying BizSpace, which offers light industrial, workshop, studio and out-of-town office units to a range of businesses there.
As a nontraditional property company, Inospace does not have direct competition in SA, which widens the playing field. However, in the UK, it will compete with Sirius Real Estate.
Warren Aronson, business development executive at Aucor Property, said the industrial property sector, and last-mile logistics in particular, continues to experience demand in SA and globally. “We’ve seen a number of listed property funds selling small noncore and B-grade industrial properties often measuring around 5,000m2 coming through our auctions.”
Aronson said Inospace is an innovative disrupter needed in the SA property market. Investors with capital and right infrastructure are buying older industrial buildings and repurposing them into storage or workspace, for example.
Levitt said Inospace has a healthy balance sheet, and the capital light strategy will help with funding acquisitions. The company will continue to leverage its partnership with Fortress and other investors while capitalising on managing assets on behalf of others to fulfil its growth ambitions.
In SA, he said accessing capital to grow is a challenge, and rising interest rates and higher inflation will result in increasing operational costs. Listed real estate investment trusts (Reits) will continue selling noncore industrial properties which do not fit in with their specialisation, and this is why Fortress partnered with Inospace as the company wants to focus on logistics.
“The smaller logistics space outlook is positive with growing demand and rentals growing between 10% and 15% and ahead of inflation, which positions Inospace for growth,” said Levitt.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.