Fortress Logistics continues its growth trajectory
Central and Eastern Europe developments
Driven by the demand to supply high-growth western European economies, Fortress Logistics first two signature acquisitions in Poland (Stargard and Bydgoszcz) were concluded in 2020 to deepen and extend the investment proposition of Fortress as South Africa’s leading supplier of high-quality logistics real estate in prime locations.
The third acquisition of a logistics park in Romania took place in July 2021. This acquisition had some vacancy, subject to an earn-out with the developer upon leasing the space. Given the buoyant market, the space was let well before December 2021 and EliPark 1 is now fully let with a yield of 8% on the acquisition cost.
Further to the land located in the two Polish parks acquired in December 2020, Fortress then enhanced the development pipeline with two further acquisitions of land located in Łódź and Zabrze in Poland in January 2022.
This brings the total development pipeline in the CEE region to approximately 255 000m2 of GLA.
In February 2022, construction of a warehouse was completed for an existing tenant, Eco Ready Bath, which expanded in Stargard. Additionally, the team commenced construction on Phase 1 of the fifth warehouse in Bydgoszcz, measuring 7,713m2, of which 2,160m2 has been pre-let to Volcano, an online clothing retailer.
The preference to develop assets on strategically located sites with Fortress’s in-house team in Poland stems from the high developer profit margins and a lack of well-priced, income-producing assets for sale. Retaining operational and development capability in-country enables better market access and limits the high fees that more passive investors are required to pay to access this asset class.
Romania still attracts a risk premium, however, due to the very limited number of operating assets available for acquisition, the investment yields have compressed significantly. The market for well-located, quality logistics real estate remains strong, not only from an investment perspective but also from a tenant demand perspective, which indicates there is scope for growth.
Inospace R1,25bn last-mile logistics joint venture
One of the biggest property deals announced this year is between South Africa's leading owner and operator of branded business parks, Inospace and Fortress REIT. The partnership plans to unlock the significant opportunity that exists in last mile logistics. The joint venture was launched in March this year with an initial portfolio of twenty industrial properties in Cape Town and Johannesburg offering a combination of warehouse, logistics, storage and work space at an initial valuation R1,25billion. Fortress has sold twelve multi-let assets to Inofort, with Inospace contributing the balance.
The combined portfolio spans a total lettable area of 200,000m2, with over 600 tenants. All the parks will be branded and repurposed to provide Inospace's value-enhancing facilities, such as staffed business hubs, meeting rooms and business storage. A new range of amenities will be introduced to the parks to assist SMEs with last-mile logistics including rigging and lifting equipment, handling apparatus, packaging materials, waybill printers and an online courier and shipping platform.
The ongoing running of the assets in the JV are governed by a management contract, which ensures Inospace will utilise its technology-enabled platform to optimise, market and operate the assets.
The transaction resulted from a trial with two Fortress owned properties in Gauteng, which were successfully repositioned into serviced business and micro-logistics parks named Wadeville Works and Electron Exchange.
Specialisation in smaller urban industrial and last-mile logistics spaces has proven to be a high growth sector. The partnership will capitalise on the asset management expertise of both Fortress and Inospace who bring complementary skillsets to the joint venture.