Small logistics assets in the Western Cape are in high demand, says Inospace

Inospace, South Africa’s leading owner and operator of serviced logistics parks, has acquired two last-mile logistics assets for R28m in the Western Cape – taking the portfolio to 51 parks in Cape Town and Johannesburg.

Smaller industrial and last-mile logistics assets have been insulated from local and global economic shocks due to growing demand for micro-logistics and last-mile distribution centres, says the company.

“The recent growth spurt in the Western Cape and ongoing e-commerce penetration has resulted in the Cape Town industrial property sector outperforming other commercial property regions and segments,” says CEO Rael Levitt.

He explains that smaller assets in the Western Cape are a brighter spot in a gloomy economic environment. To capitalise on this opportunity, in November, the company made the decision to focus on growing its footprint of small-format logistics and industrial properties in Cape Town.

Recent acquisitions include a property situated in the popular Bellville Triangle node and a property in Epping Industria. The property in the Bellville Triangle was purchased from Standard Bank who previously used the site as a high security cash processing centre. Located on Peter Barlow Street, the refurbished property leased to an automotive valet company was bought at an initial yield of over 14%, says Levitt.

The second property is an industrial park on Benbow Avenue in Epping Industria. The over 5,000m2 property was purchased fully let at an initial yield of more than 12%. Inospace believes that with inflationary pressure and higher interest rates, new acquisition yields should be over 12%.  

Levitt says although they remain bullish on the booming last-mile logistics sector, particularly in the Western Cape, the investment side of the commercial property market was significantly affected by rising inflation and interest rates as well as ongoing load-shedding. This resulted in increased borrowing costs weighing on investor demand and hurting valuations.

“Over the last three years, demand for logistics space outstripped supply resulting in logistics and warehouse facilities experiencing rental growth,” says Levitt.

In January, Inospace increased its market rent growth forecast to nearly 10% in 2023, on the back of 12% rental growth achieved in 2022 – the highest growth to date.

Levitt says supply remains inherently capped by land constraints. Rental growth will naturally moderate toward trend levels with fundamentals remaining healthy during 2023.  

“We continue to identify assets with robust occupational demand that are mispriced against long-term fundamentals,” says Levitt.