MIPIM, the world’s major international real estate event in Cannes, France, which ended on Friday, signalled a return to normality after the Covid health crisis. Under the shadow of a Russian-Ukrainian war, MIPIM’s recovery from a two-year Covid break revealed good news amid clear global difficulties.

Both listed and unlisted companies worldwide were represented at the event. There are many lessons for the South African property market, despite the visible lack of any African representation.

According to Rael Levitt, CEO of Inospace which leases and sells industrial, storage and office space in multi-use serviced business parks, the recovery validates the value we see in the industrial and logistics sector, which is booming worldwide with growing investor and tenant demand.

“More critically, we have also experienced strong rental growth in industrial units, and this seems to be a global trend in most first and second-tier investment destinations,” says Levitt.

A day before the conference, in what was being billed as the largest private equity real estate ever, Mileway, the pan-European last-mile logistics real estate owner, was recapitalised by over R300 billion ($21bn). Mileway’s backer, the Blackstone Group which is the world’s largest private equity firm, confirmed their strong commitment to the industrial and last-mile logistics sector with their large capital commitment.

“High occupier demand for all types of industrial logistics space and the Blackstone deal has raised the bar for the sector by most measurements,” says Levitt. “The intense investor appetite in logistics real estate was a theme that ran throughout the conference, despite the world’s biggest REIT and warehouse owner, Prologis, being a MIPIM headline sponsor.

The Prologis Europe team was out in full force at MIPIM, and several of their experts moderated or spoke at panel sessions. The strength of logistics real estate investors’ enthusiasm for what it offers gave the sector’s other bigger participants’ credibility to wield when raising money.

P3 Logistics Parks, based in Prague, debuted on the bond market with a €1bn (R16.1bn) green-bond issue in January. CTP, Continental Europe’s largest owner, developer and manager of logistics and industrial real estate by lettable area, reported a 306 percent rise in net profit for the 12 months to 31 December, exceeding its March 2021 IPO targets with a total annual return of 47 percent.

Under a cloud of the Russian invasion of Ukraine and a spectre of wider European conflict, there was an even larger emphasis on operational property players that could outperform inflationary pressure.

Most investors are eyeing sectors where operators can add value instead of investing in traditional steady yield income that would not be able to keep up with inflationary pressure. Reflecting this is a growing interest in second-tier geographies – especially in Ukraine’s prosperous neighbour, Poland.

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“It was alarming that there was little African representation at MIPIM, and the continent did not overtly appear to be on investors’ radars,” says Levitt. “However, it was recognised that South Africa has a sophisticated and established corporate, institutional real estate environment and should be on the international investment radar, despite its unreliable electricity supply and negative business sentiment.”

With investors focusing on thematic investments, following trends such as urban logistics and omni-channel transformation, real estate growth is expected to be primarily driven by sectors outside of retail and offices.

Self-storage, last-mile logistics and data centres are expected to gain in importance, while renovating and re-purposing redundant real estate was interrogated as part of a broad effort to new working and shopping patterns that have changed dramatically since the pandemic.

In Europe and North America, some shopping centres have been converted into last-mile delivery areas to accommodate the increase in e-commerce.

This change has been a long time coming, and the crisis has accelerated trends that were already there.

It was reasonably obvious to any participant that the industrial logistics sector had a pretty good pandemic in business terms; the sector, or at least many of the company’s occupying logistics and delivery spaces, provided a vital service for locked down consumers as the pandemic accelerated the trends towards omni-channel retailing and gaps in supply chains.

Providing the space to facilitate product delivery has elevated the industrial and logistics sector from an unglamorous outsider to a sector of choice, with yield compression to match.

Rental growth has been growing and several sectoral specialists believe there will be double-digit rental increases in 2022. Several large industrial operators, including Prologis, reported occupancy of 100 percent in many markets. Many big-box owners and managers said that they had run out of space, pushing the need for new-build developments to alleviate supply constraints.

ESG sustainability, particularly energy efficiency, was another major theme. It was noted that the large roof areas of industrial and big-box logistics properties provide an ideal platform for solar panels.

“With our unique electricity constraint, South Africa seems ahead of many international investors, where we lead by feeding electricity into the electricity network,” says Levitt.

What was clear is that the future evolution of logistics and industrial real estate is not just physical in terms of location and design. Several commentators believe that industrial and logistics real estate will become a turnkey product akin to serviced offices.

Leading companies have focused on providing customers with products and services beyond four walls and a roof. Value-adds such as racking systems, handling equipment and forklifts are added to their customer offerings.

“Warehouse-as-a service” was touted as a concept where customers can turn up, open their doors, and everything they need is already covered by one transparent rent.

“Despite the spectre of an escalating Eastern European war, the outlook for 2022 is positive. There was a sense of relief and optimism at MIPIM, and it appears that commercial real estate will grow as a favoured asset class, concludes Levitt.

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