The industrial property sector continues to perform strongly worldwide, reporting more transactions than those in the retail and office property sectors.
According to the latest MSCI SA Biannual Property Index, industrial property vacancies remained below 5% in the first half of the year, while demand continues to outstrip available supply.
“The logistics sector has shown exceptional performance globally leading to higher occupancies and positive reversions driving rental growth,” Saneh Memela, investment analyst at Meago Asset Manager, told Business Day.
Memela said the Covid-19-era accelerated a number of trends such as increasing adoption of e-commerce and supply chain consolidations provided additional support to industrial asset demand.
The Jones Lang LaSalle (JLL) logistics and industrial overview for the first half of 2022 reveal that demand growth is outpacing available supply in the logistics sector
Within the unlisted property sector comprising owner-occupiers, private investors, unlisted funds and developers, there is about 10-million square metres of inventory. About 4-million square metres is considered prime or logistics suitable facilities with most of new modern logistics facilities being tenant driven
JLL said there is a marked shortage of well-located and quality stock measuring more than 20,000m².
Inospace, SA’s last-mile or small logistics specialist, said the structural shift in consumer shopping behaviour to e-commerce, the delivery economy and increasing need for consumers to receive products even faster is driving growth in this segment of the industrial property sector.
“The lack of logistics space is pushing last-mile logistics rentals ahead of other sectors, and within our portfolio, annual rental growth is now in double digits — and keeping ahead of inflation,” Jacques Weber, Inospace COO told Business Day.
Weber said smaller industrial and last-mile logistics assets have been insulated from local and global economic shocks due to growing demand for smaller-format logistics warehouses and distribution centres.
Low vacancies
He said investors favour last-mile logistics because vacancies are extremely low, supply is limited resulting in strong rental growth, there is growing demand from tenants and institutional investors as well as promising outlook for the sector.
Old Mutual Investment Group portfolio manager Evan Robins said that while globally the industrial sector has been one of the strongest property sectors, it has cooled recently.
SA has been no different as the need for more logistics and warehousing facilities due to growth in e-commerce continue to demand drivers for space.
“Unlike the office property sector that is oversupplied or retail which was over-rented given trading conditions, the industrial property sector is characterised by low vacancies and limited supply providing hope of rental growth,” said Robins.
Logistics occupiers are optimising their real estate footprints to ensure more efficient supply chains, resulting in demand for newer logistics, said Craig Smith, head of research at Anchor Stockbrokers.
Smith said there seems to be appetite from investors and developers to develop distribution centres and warehouses on speculation. “This appetite has resulted in more capital flowing into this sector relative to offices and retail (on a relative basis),” said Smith.
However, he said the key is whether the demand/supply dynamics are such that it leads to sustainable market rental growth in this space.
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