Industrial property specialist Epping Property says the Covid-19 "hurricane" has brought about a whirlwind of uncertainty for businesses, but while a lot of discussion has taken place on the lockdown’s impact on shopping malls, listed property funds and major retailers, not much has been said about the lockdown’s impact on industrial-based businesses and industrial property owners.
It adds that the industrial property sector had been enduring tough economic times well before the Covid-19 pandemic struck.
Epping principal dealmaker Tony Bales explains that vacancy levels remained high in the last seven years, rental growth was slowing and business confidence remained low as well.
Now, he says, entering 2020 and Covid-19, larger food-related and pharmaceutical businesses have generally continued to maintain a form of financial continuity while the majority of industrial enterprises had not been as lucky.
Bales believes that many industrial businesses already felt the pinch of Covid-19 in January when the supply of goods out of China dried up.
For every industrial product, there is an extensive supply chain that most people do not think about, he says, adding that a larger supply chain often includes packaging companies, printing companies, suppliers for printing and packaging companies, transporters and couriers, and warehouses.
“The nature of businesses in South Africa is one where many processes are labour intensive. Many industrial companies in lockdown have a very high labour-to-sales ratio, translating to labour being a very significant monthly cost item.
“Much of the industrial workforce are ‘blue-collar’ workers who financially survive on a week-by-week basis, and with no income coming in, businesses will very quickly find themselves in financial trouble. Any suspension of salaries will be disastrous to their employees and the family members that many of them support,” Bales explains.
Epping points out that with industrial businesses taking strain, many of them will find it difficult to pay their landlords their rent.
“The JSE-listed property landlords have their backs to the wall as they have bank loans they need to service, plus investors that expect a rental return.
“In a nutshell, most landlords have loans on their properties which require monthly repayments and many private landlords also rely on monthly rental income to live on,” Bales elaborates.
Epping believes the solutions lie with industrial businesses communicating and being open and honest with their landlords and bankers, and landlords being open and honest with their bankers and investors.
“In the medium term, businesses need premises to operate out of, and landlords need tenants. Everyone needs bankers. We are all in this together, and solutions need to be sought that satisfy both the short-term requirements of both parties and also look towards the medium-term.
“The world, as we knew it has changed. Industrial businesses, industrial landlords and the banks will all need to find short-term solutions that can be accommodated by all parties, as all parties need to survive and co-exist in the longer term,” concludes Bales.