Accelerating trends such as e-commerce and data centres are adding resiliency to industry property against the backdrop of the Covid-19 pandemic, says real estate investment trust (Reit) Redefine Properties.

While online sales in 2018, at R14-billion, still constituted only a fraction of what South Africans spend in malls, online shopping has shown exponential growth since then and this has had a direct impact on real estate demand.

The promise of same-day delivery or overnight shipping requires massive warehouses to be situated close to communities and, in many cases, these are larger than a traditional warehouse, says Redefine national industrial asset manager Johann Nell.

“The trend that has us equally excited is the growth in demand for data centres. This is driven by key changes like remote working, a rise in e-commerce and on-demand streaming services, mostly triggered by the pandemic.

"Like e-commerce, the big data phenomenon is not new, yet, it was not until the pandemic that it started to manifest itself in the real estate sector.”

Nell adds that the industrial property sector stands to benefit from the huge growth in data consumption as well as the Internet of Things.

Additionally, an increase in remote working will also contribute to demand for strong data centre capacity, while the roll out of fifth-generation networks will also promote growth in the data centre market.

“The promise of artificial intelligence can only be actualised when data centres can store, process and analyse data faster. These innovations bode well for industrial property and distributed data centres,” Nell explains.

Further, professional services firm WSP regional director for structures in Africa Johan Piekaar says in a statement that, over the past several years, there has been steady interest and growth in activity in the light industrial property space, including warehousing, storage and distribution centres.

“We have seen big retailers, who have been successful even in these trying economic times, developing large and centralised greenfield warehouses and distribution centres,” he points out.

Piekaar explains that the reason for this is that, in a difficult market where pricing is increasingly competitive, businesses are looking for an edge or advantage that will help them stay ahead of their competition.

One way to achieve this is through driving efficiencies in how they manage their distribution and supply chains.

“Companies that can afford to adapt and make diligent investments to increase the capacity and efficiencies of their warehousing, storage and distribution facilities to where they need to be – to meet the changing market needs - will be resilient well into the foreseeable future.”

Growthpoint Properties industrial asset management head Errol Taylor says the Reit’s industrial property portfolio, particularly warehousing and logistics, has proven to be the most resilient of all the property segments as a result of South Africa’s consumption-driven economy.  

This helped to offset restricted import and export capabilities for manufacturing and logistical supply chain operations.

Taylor states that several logistics service providers have been able to capitalise on the spike in online sales amid the national lockdown.

Growthpoint offices asset management head Paul Kollenberg adds that the Reit has seen an interest from companies doing online deliveries, as well as from Internet and fibre providers, wanting to take up more space as the demand for their services grows.

Reit Fortress CEO Steve Brown states that the rapid coming of age of e-commerce in South Africa has increased the focus on supply chains, while Covid-19 has highlighted the importance of warehousing and the strategic imperative of carrying more stock.

“Even after lockdown, trade wars and other mounting global tensions are likely to sustain demand for storage and supply infrastructure − if building trends in Eastern Europe are anything to go by.”

He adds that logistics properties currently account for a third of the Reit’s R30-billion real estate portfolio but, by investing R1-billion a year in new logistics assets over the next five years, Brown expects logistics to account for two-thirds of Fortress’ portfolio by 2025.

Brown believes Reits with higher logistics and industrial exposures have been better shielded from Covid-19 impacts. For example, since many retail tenants have been prevented from trading owing to lockdown, they have had less cash flow, impacting their ability to pay. This is less of a risk with logistics and supply tenants.

“The future is omnichannel and omnichannel still requires quality retail spaces near where people live - in dense urban centres as well as essential rural and transport nodes. From this perspective too, e-commerce and negative sentiment are less likely to impact South Africa’s far flung rural nodes characterised by low Internet penetration,” Brown laments.

So, while a weakened economy might see some consolidation of retail real estate, the best quality and most centrally located assets will retain their role − as essential social and retail spaces in cities, and as drivers of town hub formation and the delivery of critical goods and services in rural South Africa.

With e-commerce bucking the trend in a lacklustre economy, Brown believes the logistics property sector not only presents investors a lifeline in an otherwise challenged market, but also points to the growth opportunities inherent in meeting change with innovation.

Meanwhile, Deloitte Africa smart real estate leader Dr Marco Macagnano says we might see the future retail anchor tenant become data centres on their own, or shopping centres themselves evolve into a more logistical function with a decreased emphasis on customer facing store areas, but rather shopfronts.

Arrowhead Properties, also a Reit, believes demand for manufacturing space will increase on the back of localisation. “It has been evident that the pandemic has forced certain sectors, such as supermarkets and textiles, to increase their reliance on local manufacturing, owing to imports being closed during the lockdown and still remain limited compared with before the pandemic.”

Naturally, the industrial property sector will also benefit from economic stimulus and growth programmes implemented by government over the next few years.