Logistics will be a part of the rebuild of the economic recovery

The accelerated adoption of e-commerce and supply chain innovation post-pandemic is helping to reshape the commercial property sector in South Africa, especially the logistics real estate sector.

We are encouraged by the innovative growth in response to disruption that we are seeing in the current market. This is likely to continue after lockdown, as industries
adapt to the broad range of opportunities that this new world reality presents.

We hosted a webinar at the beginning of August where thought leaders in the industry discussed the drivers of future growth in South Africa with focus on logistics real
estate. A key insight shared by the speakers was that activity has increased in the logistics real estate sector in the last 12 months as online shopping habits have
become more widespread — especially during the lockdown period.

Logistics is the backbone of an e-commerce world and having the right properties and infrastructure in place is crucial to ensuring a smooth and effective supply chain.
Therefore, a wide array of companies – from those in food delivery to retail – are increasingly paying attention to this aspect of their business.

We have seen online and traditional retailers significantly ramping up their logistics approach, including all the supply chain infrastructure needed to accelerate that. Retailers are now spending a lot more on online infrastructure, to give them the backbone to roll out an omni-channel experience for the customer.

The logistics real estate sector in South Africa is different from its counterparts insofar as the value not only resides in the underlying asset, but in the service derived from the infrastructure on-site. In addition, technology is playing a greater, more critical, role in maximising the output from assets. Storage and distribution requirements will mean that retailers will want to be closer to those they need to deliver to.

Although South Africa is behind its counterparts in Europe in this space, the country is set to catch up rapidly. Fortress is very bullish on South African logistics real estate and we believe that one thing in our favour is that for logistics, we are like Eastern European countries in that logistics can act as a portal. If we are to leapfrog the domestic market, this asset class needs to become bigger than the country it is based in.

By referencing our experience, logistics is the best growth opportunity – here’s why:
1. Despite a subdued economy, Fortress is sustaining a low single digit vacancy rate across our R10 billion logistics portfolio.
2. Our signature logistics boxes are being built at the same cost as four years ago, which means we can provide out tenants with competitive rentals, similar to what we were offering
a few years ago.
3. We currently have a pipeline of over one million square meters of logistics real estate in our secure parks which are zoned, serviced and ready to go.
4. We currently have 7 active construction sites building warehouses between 13,000m² and 25,000m². That’s over a thousand jobs that have been generated in response to Covid-19 disruption. There are approximately 150 people employed per site as a result of the capital that Fortress provides as an investment into infrastructure.
5. Logistics assets currently accounts for a third of our R30 billion real estate portfolio. We will continue to invest R1 billion a year in new logistics assets for the next five years. I predict that by 2025, logistics will account for two thirds of our portfolio at close to R20bn.

All of this points to the fact that demand for warehousing space will enable us to continue to develop our logistics pipeline.

Despite a tough economic climate, there’s room for future growth owing to the developmental nature of the South African economy. Ecommerce is bucking the trend in a lacklustre economy and the logistics property sector offers investors a lifeline in an otherwise challenged market and points to the growth opportunities inherent in meeting change with innovation.

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