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Logistics sector poised for further growth due to increasing demand for space

27 October 2022

Globally, the logistics property sector continues to outperform other commercial property sectors. This is driven by various factors.

Demand for modern logistics facilities is rising, along with the need to reduce reliance on offshore suppliers. Increasingly, more logistic companies plan to re-shore or nearshore in the medium term.

“In both SA and the UK, Equites is experiencing huge demand for warehousing space and, given our development pipeline, we are confident about meeting some of this demand from existing and new tenants,” says Andrea Taverna-Turisan, CEO of Equites Property Fund.

Commenting on the company’s first half of the 2023 financial results, Taverna-Turisan says that, given the strong property fundamentals in SA and the UK, they expect the Equites portfolios to continue to perform well.

The importance of supply chain optimisation, the growth in e-commerce, the requirement for higher inventory levels, and the significant trend of on- and nearshoring will drive this performance.

 

Rental growth in SA portfolio

Rental growth is driven by lack of available A-grade warehousing facilities, availability of serviced land, pent-up demand from occupiers and focus on supply chain optimisation and operational efficiencies.

Equites achieved rental growth of between 15% and 20%, and concluded five leases over R80/m2 – levels unseen in the market in the last four years.

Vacancies remain below 1% with tenants including DSV, Digistics, Puma, TFG, Motus, Shoprite Holdings, Simba and Nestle.

He explains that operational efficiencies within Equites buildings are not comparable to any other in South Africa. The warehouses are intentionally designed to reduce tenant occupational costs and improve efficiencies.

For example, the height to eaves measuring 15.5 metres enables occupiers to store much more inventory with higher racking. Free solar photovoltaics (PV) and LED lighting reduce operational tenant costs, among many other design features.

Over the next three years, Equites will add 330 000m2 of A-grade warehousing to their portfolio with R3.7bn invested in the development pipeline.  

 

New occupiers enter the UK market

Taverna-Turisan says occupier demand is robust in the UK, with take up of space increasing 17% year-on-year, recording 28.6 million square feet during the first half of 2022 alone.

Although online retailer take-up of space decreased from 35% in 2021 to 18% during the first half of 2022, there was rising demand from other occupiers looking for modern warehousing facilities.

With high demand and low vacancies, rental growth is expected to reach 15.8% for 2022, according to Gerald Eve real estate advisory firm.

 

Strong balance sheet

Amid a challenging economic environment, Equites delivered strong financial results. They supported long-term leases let to blue-chip tenants, ensured prudent capital allocation and maintained rigorous balance sheet management.

Its portfolio value increased by 24% to R26.3bn, with gearing levels reached 33.3%. During the reporting period, cash and undrawn facilities were sitting at R1.4bn.

© 2024 Equites Property Fund Ltd.
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