Inospace’s portfolio optimisation sees rental lift

Inospace, SA’s largest owner and operator of last-mile logistics parks, has completed about 50% of its portfolio optimisation to accommodate smaller logistics users in Cape Town and Johannesburg.

Globally, last-mile logistics or smaller industrial spaces used by businesses as distribution centres to deliver goods and products have boomed over the past three years, driven by supply chain jams and surges in e-commerce.

Since the launch of Inofort — a joint venture with Fortress Real Estate Investments in March 2022 — Inospace has focused on implementing the optimisation strategy of the 20asset portfolio to extract value.

The optimisation process included rebranding under the Inospace model, reconfiguration of buildings, fitting out of business hubs and creating additional space to suit small and medium enterprises.

“Capex allocated for the portfolio optimisation has now been spent, resulting in higher occupancies and immediate uplift in rentals,” said Bruce Collins, head of asset management at Fortress.

He said the recently optimised Island Works in Paarden Eiland, Cape Town, has seen sizeable rental increases.

In Johannesburg, there has been an increase in demand for smaller warehouse facilities and offices measuring between 50m² and 200m², such as Inospace’s Tambo Exchange Logistics Park in Boksburg and Lanzerac Works Business Park in Midrand.

Inofort launched with the R1.25bn portfolio of 20 industrial properties, offering a combination of warehouse, logistics, storage and workspace. Fortress initially contributed 12 multilet assets, with Inospace contributing the balance. Fortress holds a 51% controlling stake in Inofort and provided a mezzanine loan of up to R300m.

Inospace, which is unlisted, was founded in 2017 with one asset valued at R30m — but has since grown its portfolio to R3bn and intends expanding further to R5bn by 2025.

Collins said they intend growing the portfolio to about R5bn, but as an exit strategy to listing or selling to an institutional investor.

Inospace CEO Rael Levitt told Business Day that the first year of Inofort focused on portfolio optimisation — a process that will continue in 2023 and would look to grow the portfolio in 2024. “The project has been successful to date as we continue to see increasing demand from smaller users,” Levitt said.

He said that the business model is to acquire old and big industrial properties and convert these into small spaces with value-enhancing facilities, such as staffed business hubs, offices, meeting rooms and business storage.

The parks are situated close to main roads and highways, as well as to airports, making access easier for their occupiers. For example, Tambo Exchange near OR Tambo International Airport remains a sought-after location, and Midrand, where the company has four parks, is a big growth node attracting a mix of small businesses looking for secure business premises.

Levitt said that with growing demand for its assets, the company sold its flagship logistics asset, The Island Urban Logistics Park in Cape Town, to JSE-listed Spear Reit, as it did not feel it could add material value to the property.

As Inospace looks to acquire new assets, it would continue to sell a few that are fully optimised, with larger tenants, and would attract institutional buyers, he said.

Levitt said that in 2022, the Inospace portfolio experienced 12% rental growth — but with rising interest rates and inflation, coupled with slow economic growth and increased loadshedding, they expect rentals growth of about 10%.

Though operating costs across the board have risen about 15%, Levitt said they are able to boost their rentals by having many smaller spaces.

“With shorter lease periods, Inospace is able to pass inflationary capex costs on to the tenant — but we have to be cautious given the current environment, which will no doubt affect our bottom line,” he said.

Levitt said rising interest rates, inflation, uncertainty in the global economy and poor municipal service delivery remain a challenge.

He said at Lanzerac Works Business Park, Inospace has installed a generator and borehole due to constant water shortages in the area. Alternative water supplies would be rolled out across their parks in Johannesburg.

“We have found that compared to Cape Town, the City of Joburg is a not a businessfriendly environment — landlords continue to pay more in rates and taxes, but service delivery is deteriorating,” Levitt said.