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How the pivot to e-commerce is impacting commercial property investment

By Fortress REIT Limited 7 August 2020

The accelerated adoption of e-commerce and supply chain innovation in a post-COVID-19 world is helping to reshape the commercial property sector in South Africa, especially when it comes to the ongoing growth of logistics real estate.

Fortress REIT Limited

On Thursday, 6 August 2020, Fortress REIT Limited webinar titled The Great Rebuild, where top industry professionals unpacked the drivers of future growth in post-Covid South Africa, with a focus on logistics real estate. The webinar, hosted by Bruce Whitfield, included a panel discussion Steven Brown (CEO of Fortress REIT Limited) alongside Robert Dobrzycki (CEO of Panattoni Europe) Phil Marais (Head of Africa and Brazil Supply Chain, Cotton On Group) and Mike Stopforth (CEO of consulting firm Beyond Binary and speaker on digital leadership) as well as commentary from other thought leaders in the industry. 

A key insight is that activity has increased in the logistics real estate sector in the last 12 months as online shopping habits have become more widespread — especially during the lockdown period.

Logistics is the backbone of an e-commerce world and having the right properties and infrastructure in place is crucial to ensuring a smooth and effective supply chain.

Therefore, a wide array of companies – from those in food delivery to retail – are increasingly paying attention to this aspect of their business.

Brown explained how Fortress has seen online retailers, as well as traditional retailers, ramping up logistics significantly, including all the supply chain infrastructure needed in order to accelerate that. “Retailers are now spending a lot more on online infrastructure, in order to give them the backbone to roll out an omni-channel experience for the customer,” he added.

Enrico Ferigolli, Co-Founder of Bottles App believes that demand for online shopping will continue, providers will need to improve their delivery service and that customers will move from light users to heavy users. Covid’s impact on e-commerce is dramatic and the consumer mindset has shifted. “The lockdown and Covid hitting forced a lot of people to try online ordering. A lot of these people were happy with what they received. The service was there when they needed it most, resulting in growth of three times more than it was before,” he commented. 

Stopforth said that it is not online shopping versus in-store shopping, it’s just shopping, and consumers get to choose both. Brands that think like this are receptive to opportunities and have the capacity to adapt quickly. The future of e-commerce and retail is “that we won’t think about it as e-commerce anymore but on demand supply,” said Stopforth. “We have been given a time machine to see what the world will look like in 10 years’ time. This has eradicated the excuses for not putting plans in place to be prepared for what consumers want,” he added. 

The logistics real estate sector in South Africa is different from its counterparts insofar as the value not only resides in the underlying asset, but in the service derived from the infrastructure on-site. As reiterated by Prof. Francois Viruly, Property Economist and Professor at UCT, “Property owners need to understand increasingly: it’s not the leasing of square metres that is important in this game, what is critical is a service being provided.” 

In addition, technology is playing a greater, more critical, role in maximising the output from assets. Gary Benatar, CEO of ReLog, said, “Tenants want flexibility and the ability to scale up and to put in technology. The difficulty is that when one puts technology in a rented facility, one looks for quite a long payback to cover your investment. This must be balanced with the tenancy in the facility.  It has to be suitable to be able to take on the additional technology.” 

From a European logistics perspective, Dobrzycki is of the view that the next five years will clearly be reshaped in terms of locations of where we build and what we build. E-commerce will continue to grow and become a much larger part of what logistics is offering its clients. “We need deep understanding of this asset class as it is growing fast. We will be looking past country borders for equity opportunities and follow the demand as we try pioneer in new logistics locations by going where the demand is,” Dobrzycki said. 

Brown reiterated that although South Africa is behind its counterparts in Europe in this space, the country is set to catch up rapidly. Fortress is very bullish on South Africa’s logistics real estate. “One thing in our favour is that for logistics, we are like Eastern European countries in that logistics can act as a portal. If we are to leapfrog the domestic market, this asset class needs to become bigger than the country it is based in,” said Brown. 

Prof. Viruly added that “the logistic sector will continue to move closer into our urban environment. Storage and distribution requirements will mean that retailers will want to be closer to those they need to deliver to. 

From a retailer point of view, Phil Marais explained that they had to help their customers adapt to the way they wanted to shop. “Our global distribution gave us a blueprint of sorts for how to deal with the impact of Covid. Because countries in the east felt the effects first, we could see that we had to control the flow of stock, leaving us in a good position to meet online shopping and in-store requirements when retail opened again.” It is important for the logistics sector to remember that retailers need to keep their customers happy, which means that “there can be no excuses and expectations must be met,” commented Marais. 

Despite a tough economic climate where a contraction in growth could reach record double-digit percentage points in 2020, there’s room for future growth owing to the developmental nature of the South African economy. As Bruce Whitfield delivered in his keynote address, “we all need to focus on the upside of the opportunity sets we are given.” DM/BM

 

View the webinar on YouTube or on the Fortress REIT Limited LinkedIn page. 

 

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