Although the Covid-19 pandemic has resulted in some negative impact on the industrial property market worldwide, there have also been some positive impacts and future potential upside brought on by the pandemic, says real estate investment trust Equites Property CEO Andrea Taverna-Turisan.

In more developed markets for instance, he says, online sales and e-commerce in general increased, in some regions substantially, during the height of the Covid-19 pandemic.

With the pandemic forcing many people into the confines of their homes for several weeks on end, online sales grew from just over 20% in August 2019 in the UK, to about 33% during August of this year.

However, Taverna-Turisan notes that online sales were never significant in terms of overall sales in South Africa, and he expects the country’s online sales grew from about 2% of overall sales in 2019, to about 3% this year as a result of Covid-19.

Meanwhile, he notes that some retailers performed better than others, with Dischem for example experiencing a 344% increase in online sales for the first 24 weeks of the year. Mr Price's online sales were up 75% for the year, which beat its 2019 Black Friday sales performance.

By June, Massmart’s online sales grew 100%, that of Builders Warehouse by 160% and Makro’s online sales by 84%.

Taverna-Turisan notes that the significant growth in online sales has, however, resulted in increased strain on supply chains, many of which were already near full capacities. It has also led to retailers looking to increase their inventory levels to better cater for increased volumes of online shopping and to become more resilient to Covid-19-induced and similar market shocks. This is counter to a pre-Copvid-19 focus on improving mostly efficiency of supply chains.

Further, there has been a massive focus on diversifying supply chains, he says. As such, Taverna-Turisan posits that some manufacturers might look to “onshore” parts of their manufacturing as a method to ensure they are unaffected in the future if something major, such as Covid-19, were to affect the availability of raw material and finished products. This is risk aversion from the manufacturing side, he states, which is needed to enhance the level of inventories that are needed to ensure manufacturing can continue efficiently.

These factors could result in further demand for industrial property spaces.

Another industrial property trend that is likely to be sped up is the replacing of manual human labour for item picking in warehouses of fulfilment centres. The task is likely to be handed over to automated robots and systems, with either no human interaction or limited amounts thereof.

RISKS
Three main risks, however, remain for the industrial property market going into the end of this year and into 2021, including an unstable and unpredictable economic environment. As such, he says the lacklustre gross domestic product growth is resulting in some tenants adopting a “wait-and-see” approach in terms of renewing leases or taking on more space, resulting in them being hesitant to commit to longer-term leases.

The second risk is on the supply side, with an increase in potential new supply of industrial properties as real estate investment trusts and private property players increase their investment and capital allocations to this property subsector.

Taverna-Turisan says accessible bank funding for this subsector, coupled with shorter construction periods, could assist in a rapid increase of supply in the short to medium term.

The third risk involves retail to industrial property conversions. Although this is a longer-term risk, he says the conversion of retail space into logistics or fulfilment centres will increase the supply of overall industrial space.

Taverna-Turisan notes that Equites expects this could be driven by mall landlords embarking on anchor logistics conversions, or strip centres converting into fulfilment centres that could become a blend of the two types of properties.

He notes, however, that other challenges could potentially arise, including legal, political and profitability aspects of performing these conversions.