In SA, e-commerce-based companies now represent nearly 25% of all new industrial-zoned leasing, from less than 5% five years ago
WORDS: RAEL LEVITT INOSPACE CEO
SA’s e-commerce adoption, which is still in its early stages, experienced an acceleration during the pandemic lockdown period of 2020-2021.
TAPPING INTO E-COMMERCE GROWTH OPPORTUNITIES
E-commerce companies suddenly accounted for a large percentage of industrial property absorption as consumers preferred online shopping instead of in-store shopping. In 2021, SA’s e-commerce grew by 66%. Deloitte research reveals that more than 70% of SA consumers shop online. Mobile penetration among local consumers is higher than ever, which translates into online sales growth. A Geopoll survey in 2020 indicated that 45% of South Africans browsed the internet on their phones for a few hours a day. By January 2022, there were 41.19-million active internet users in the country. The integration of wallets, banking and shopping apps has made browsing through virtual shopping isles easier than ever before. From a survey of SA consumers, Mastercard concluded that online shopping would continue to grow, with 71% of respondents saying they will continue to shop online post-pandemic.
E-COMMERCE GROWTH
Online shopping in SA dates back more than two decades when Naspers launched kalahari.com in 1998, becoming the country’s largest online retailer. However, it has taken years for e-commerce to become a mainstream platform. The SA real estate sector is just starting to deal with the soaring demand for real estate that underpins the online retail ecosystem.
Global online retail behemoth Amazon, which plans to launch in SA in early 2023, according to Business Insider, which quoted leaked documents, will compete with Takealot (kalahari.com descendant), traditional retailers with an online presence and other e-commerce platforms. Furthermore, Amazon reportedly plans to launch its Fulfilment by Amazon service in SA for third-party sellers. This service will significantly cause smaller e-commerce distributors using Amazon’s platform to grow their online markets.
As SA consumers become more comfortable with online shopping, their appetite for other e-commerce solutions is growing. Logistics real estate — a category that falls under the broader industrial market — is one of the recipients of this behavioural shift. Now, e-commerce based – companies represent as much as 25% of all new industrial-zoned leasing, from less than 5% five years ago. Growth is surfacing in multiple categories, from large dedicated big-box warehouse facilities to small last-mile depot facilities and everything in between.
While most real estate analysts associate logistics real estate with big-box warehouses, the logistics property sector which has shown the most growth is the last-mile delivery sector catering for small and medium-sized companies (SMEs). Research done by McKinsey reveals that SMEs make up 98% of businesses in SA and employ between 50%-60% of the workforce. This is the real estate sector market that will demonstrate aggressive growth. The focus on last-mile logistics reflects the pressure to reduce delivery times from warehouses to consumers. In recent times, growth has been faster in this sector while demand for larger logistic facilities holds steady. The businesses that occupy logistics spaces are encapsulated in five broad categories:
MEGABRANDS
These are the world’s largest online retailers, including Takealot in SA, and hopefully soon to be joined by global giant Amazon. Takealot’s online revenue grew to R13bn in 2021 from R9.6bn in 2020. This translates to shipping an average of more than 5-million packages per month (166,000 per day), a considerable fulfilment challenge that ramps up higher during holiday periods. Big brand occupiers need substantial logistics facilities near highways and airports. They favour larger and more functional structures and new buildings as well as pre-existing facilities are growing in demand.
LARGE BRANDS
These are often large retailers with established omnichannel offerings to enhance customer experience. Retailers such as Pick n Pay, Shoprite Checkers, Woolworths and online only operators NetFlorist and Yuppiechef are examples. Large brands have considerable fulfilment challenges, many still leverage their existing supply chains and store networks. Ultimately, many will develop dedicated e-fulfilment logistics sites.
SMALL AND NEW BRANDS
Newer and small businesses are experiencing dramatic online growth and distribution challenges. These include companies such as Veldskoen shoes, Forever New, Evetech, Raru, Mantality and ASOS, as well as dark kitchens and dark store spaces. These tenants need small last-mile hubs in major urban markets. Their size requirements vary, with larger and newer brands often taking logistics space measuring more than 5,000m2.
3PLS WITH E-FULFILMENT CAPABILITIES
Outsourcing is commonplace for companies such as Imperial Logistics and Nexus Fulfilment. 3PLs have expertise in a complex field and help online retailers execute e-fulfilment. Their real estate requirements vary widely depending on the 3PL customer’s needs, which naturally follow the mega, large and newer-brand business requirements.
PARCEL DELIVERY COMPANIES
These businesses are critical partners to online retailers, including companies such as The Courier Guy, ParcelNinja FedEx and UPS. These businesses have seen material growth as business-to-consumer delivery expands rapidly. Occupiers have various real estate needs and depot locations are growing. The greatest demand is for last-mile logistics facilities ranging from small to large spaces.
With all these emerging trends and growth in e-commerce, the logistics sector will remain a high-growth real estate category. Compared to other commercial property assets, industrial and logistics properties have retained the classical characteristics that investors know and love: simple and fast construction cycles, low upfront investment, low re-tenanting costs and healthy demand from occupiers.
In a world fast becoming dominated by e-commerce, industrial assets are a safe investment haven. After all, even goods sold online must be made and stored somewhere and local supply chains remain necessary regardless of whether people work from home or shop from their phones. The nondescript façades of industrial and logistics buildings mask an increasing world of complex networks, automation, cutting-edge mobility and a few of the largest and most sophisticated landlords and tenants on earth.
