Stringent workplace hygiene measures and the changing nature of retail are contributing to a noticeable spike in industrial real estate activity since lockdown level 3.
Many businesses are capitalising on increased e-commerce demand while others are focusing on the manufacturing of personal protection equipment (PPE), says Clint Marais, a regional head for Galetti Corporate Real Estate. All of this is facilitating the need for industrial property space.
A recent study reveals that e-commerce fulfilment requires more than three times the space of traditional retail sales and both e-commerce retailers and PPE manufacturers need distribution centres.
“Adding to the demand is the fluctuation of exports and the depreciation of the rand. Manufacturers are scaling up local production to mitigate the possibility of disrupted supply chains in future.” Marais predicts a major uptake in recently developed industrial areas such as Bellville South, West Coast, Airport Industria and Epping in the Western Cape, Midrand and Pomona in Gauteng, and Riverhorse Valley in KwaZulu-Natal.
“We predict a significant increase in industrial real estate development once stakeholders realise these areas’ profitability.” Landlords looking to cash in on this sector, however, must consider particular factors associated with owning and letting an industrial property, including compliance protocols, the attractiveness of lock-up-and-go space and the flexibility of lease terms.
“A building must be fully compliant with the Operational Health and Safety Act. It should be a functional space that meets all the standards, is correctly wired, with ceilings, sufficient ventilation, flooring and so on.
“All this will make the space more attractive to prospective tenants who are looking to pivot their business models and meet the fast-changing demands of the new normal.” Marais says warehouses should be as accessible and secure as possible to meet the logistical requirements of manufacturers and distributors.
“A lock-up-and-go space also increases the possibility of reducing cash flow pressure through sub-letting – a popular trend in the industrial real estate market. Landlords should also consider the longterm benefits of flexible lease terms.
“We are seeing an improvement in tenant incentives: some are being offered up to four months rent-free at the beginning of the lease. The widespread adoption of flexible lease terms in this sector will definitely come at a premium to existing market rents, but will give the tenant the flexibility to reduce their footprint at short notice.”
There is no one-size-fits-all approach for Covid-19-era regulations and he says many landlords are insisting on retaining a property’s initial rental value. “As the market’s response to Covid19 evolves, we’re seeing that the initial willingness to drastically reduce rents does not represent the whole market.