Fortress's R4bn Clairwood Logistics Park sets new benchmark
Category PROPERTY NEWS
Fortress Reit is developing its flagship asset, Clairwood Logistics Park, south of Durban, for R4bn, with completion expected towards the end of 2025.
The park is developed on 77ha historic site, and the old home to Clairwood Racecourse opened in 1921. In 1982, the Natal Racecourse Development Fund redeveloped the course, later acquired by Gold Circle in 1999.
Horse racing on the site stopped in 2014, and Fortress Reit bought the Clairwood Racecourse in 2012 from Gold Circle for R430m.
"Demand for space at Clairwood is high because there are no other prime logistics facilities quite like this well-located site in an old industrial suburb," said Jason Cooper, head of developments at Fortress.
The secure park measuring about 300,000m2 of gross lettable area (GLA) is located 11km from the Durban port with easy access to the M4 and N2. On completion, it will comprise of A-grade (considered top drawer), warehousing and office space and container yards.
Fortress is a JSE-listed real estate investment trust (Reit) specialising in the logistics and retail property sectors. Its strategy is to build a two-thirds logistics and one-third defensive rural retail.
Cooper said unlike the Eastport Logistics Park in Gauteng where tenants have the option to buy their own buildings, Fortress owns 100% of Clairwood. Due to the lengthy periods and huge capital spent on road infrastructure and power, water and sewerage connections, Fortress decided not to buy unserviced and unzoned land in future.
He said the Durban south basin is strategically important because about 60% of freight goes through the Durban port making this site exceptional.
"The vast majority of logistics tenants need to be closer to the port hence demand is high - we are well-positioned to provide better, and modern facilities aimed at creating efficiencies," said Cooper.
Copper said the rezoning, servicing and environmental provisioning of the site began in 2014. The first buildings were completed in 2018, and the park is now home to Sammar Investments, SG Consumer, Kings Rest Container Park, Imperial Logistics, African Sugar Logistics and Super Group.
More local and international tenants are expected to take up the remaining space within the park. Cooper said they continue to focus on both speculative and tenant-driven developments.
Speculative developments include about 25,000m2 warehousing facilities and mini-units of 3,000m2-5,000m2.
"Speculative developments are important for tenants who cannot plan ahead of time, and spec units are often let out before completion."
Cooper said they are achieving prime net rentals of about R83/m2 with container site rentals up to R90/m2 due to growing demand.
In its 2022 financial results, Fortress said the performance of its development business is strong with a development pipeline of about 337,463m² of new logistics assets including more than 160,000m² pre-let Pick n Pay distribution centre at Eastport Logistics Park in Gauteng.
Fortress also expanded its European logistics with the acquisition of ELI Park 1 in Bucharest, Romania, as well as development land in Poland with capacity to yield 160,000m² of prime warehousing space.
Its SA logistics portfolio was valued at R10.3bn with its Central and Eastern Europe (CEE) logistics portfolio was valued at R2.1bn at end-June 2022.
Bongwa Mthembu, head of research at Meago Asset Managers said the development pipeline success will ultimately depend on Fortress' ability to mitigate the rise in construction costs through increasing efficiencies for tenants thus enabling higher rentals.
"Fortress' SA logistics portfolio has shown stellar performance as demand for modern, well-located, prime logistics assets lead to record low vacancies and some valuation uplift," Mthembu told Business Day.
Mthembu said increases in construction costs have seen an increase in asking rentals for new developments. This will support rental growth in the existing logistics portfolio.
For the 2022 financial year, the European logistics portfolio was the best performer for Fortress thanks to the evolution of global supply chains.
"Compounding this change, the uncertainty from geopolitical turmoil and monetary policy normalisation will weigh on the sector. However, the underlying rental growth will help to offset the rise in cap rates," said Mthembu.
Justin Cousins, executive director at Peregrine Capital, said that while they have not done sufficient work on Fortress' expansion into CEE logistics to determine whether management has a competitive advantage in this region, they remain supportive of small experimental expansion into this market.
Author: Archon International Properties