Equites predicts demand for A-grade warehouse space to remain very high

Equites developed DSV logistics facility in Cape Town

Equites developed DSV logistics facility in Cape Town

Published May 15, 2024


Equites Property Fund’s share price received a generous 4.8% lift from shareholders to R13.19 yesterday after it predicted the vacancy rate for A-grade, sustainable warehousing space in South Africa will remain below 1%, or essentially, fully let.

CEO of the JSE’s only logistics focused REIT with operations in South Africa and the UK, Andrea Taverna-Turisan, said at the release of annual results yesterday that the low vacancies at this type of warehousing in key logistics nodes was due to high demand and the scarcity of appropriately zoned and serviced land.

The demand for B and C-grade warehousing space in South Africa was not likely to be the same as for sustainability-linked A-grade warehouse space, he said in an interview.

“The low vacancy rate and construction cost inflation have led to an increase in market rentals, with Equites’ base rentals on generic warehouses now starting at R85/sqm. This represents a 31% increase from base rentals of R60/sqm for comparable warehouses in 2020,” he said at the release of the results for the year to February 29, 2024.

And in the UK, the logistics property market had seen an increase in take-up rates that were even higher than those before the Covid-19 pandemic. The lack of available new space had led to a consistent rise in rental prices, he said.

Both Equities’ SA and UK property portfolios saw robust like-for-like net property income growth in the year, zero vacancy, and an uptick in property valuations, he said.

Equites completed a new regional hub for TFG at Equites Park Riverfields at a cost of R591m in the past year.

Two pre-let developments at Equites Park Jet Park were also completed at a capital value of R197m. These facilities were both let to A-grade tenants with leases expiring in 2028 and 2032, respectively.

To further capitalise on demand, construction on three new speculative developments at Meadowview had started with 20 000 square metres of lettable area, expected to be completed in the fourth quarter.

Equites’ share of the total pipeline of development and acquisition opportunities in South Africa of prime logistics space amounted to R2.5bn across 177 000 square metres, said Taverna-Turisan.

Some R3.2bn was spent on new developments in the past year, funded through an asset disposal programme. Group loan to value at year-end was 39.6% (39.7%)

The group’s annual distribution was in line with guidance - distributable income per share of 131.12 cents was at a 100% pay-out ratio.

The board anticipated the distribution per share to remain in line with the past year, within a target range of 130 cps and 135 cps.

Taverna-Turisan said they had worked hard in the past 18 months to put the group in a position to be able to take advantage of opportunities should property markets begin to improve.

“We have grabbed the bull by the horns, we are very much ahead of the curve...Our track record of developing world-class facilities for clients continues to unlock opportunities. The R2.3bn in cash and available facilities at year-end places us in a good position to take advantage of performance-enhancing development opportunities in the coming year,” he said.

Over the past year the group divested of R4.8 billion of older, non-core assets and improved the portfolio by reinvesting into state-of-the-art, ESG-compliant logistics campuses and distribution centres, tenanted by blue-chip companies on long-term leases.

Like-for-like rental growth in South Africa was 6.4%. The UK portfolio’ like-for-like rental growth increased 5% in UK pound terms, as a result of a single rent review. The UK weight average lease expiry reduced to 10.6 years from 15.8 years due to the sale of assets with 25-year leases.

He said Equites’ UK portfolio remained under-rented. The group recently agreed to a 39% increase in rental at the GXO property in Coventry, resulting in a 13% valuation uplift of the property. In addition, a rent review was conducted at the DPD site in Burgess Hill in March 2024, which led to a 68% increase in annual rentals. These rental uplifts, along with the expected yield compression, were anticipated to unlock value over the medium term.

The group loan to value ratio at year-end of 39.6% (39.7%).

Equites grew its installed solar capacity to 20.2MW from 9.4MW, while the number of buildings with solar PV increased to 29 from 19. Almost 50% of the portfolio was now supplied with solar energy. The group’s first energy wheeling agreement was concluded in the Western Cape, and the project was expected to start generating revenue in the 2025 financial year.