JLL SSA recently hosted a breakfast for SA’s top Industrial Property Landlords at our offices in Rosebank, Johannesburg, South Africa. One of the key topics was how logistics and warehousing have been affected by the current recession.
The release of the Q1 2017 GDP figures confirmed something that most had been feeling for some time – the economy sits in an official recession, confirmed by two consecutive quarters of GDP contraction. Whilst political instability and exogenous factors have contributed to weaker economic sentiments and subdued growth, fundamentally what we are seeing now is the gradual deterioration of household balance sheets. In Q1 household debt to disposable income contracted by 1.6% as higher inflation and the lagged impact of the interest rate upswing took its toll on already over-indebted consumers. The GDP contraction in the Financial Services Sector and the Trade Sector, both notably driven by household credit consumption, is exemplary of the pull-back on spending by consumers and the impact it can have on the economy. Major retailers have seen this first hand, reporting declining operating profits. Worst of all has been the closure of Stutterfords a major importer of international brand that became unaffordable to consumers as the rand weakened.
With this as a backdrop, one might have anticipated weak demand in the logistics and warehousing sector as key retail clients hold back on stocking and in line with lower consumer confidence. However, flexibility and agility in the retail market has seen freight activity for food and beverages increasing by 28.0% y/y in Q1 2017. With the entry of new retailers, the clothing and textiles sector saw a 42.0% increase in freight activity. Conscious of the price sensitivity of consumers, retailers are finding ways to retain consumer activity which is contributing to stable demand for logistics and warehousing accommodation. The competition is tightening and while consumption has slowed, households still require basic needs such as clothing, food, toiletries and pharmaceutical goods.
In conclusion, the sector maintains low vacancy rates, at about 5% nationally for prime accommodation, and it could tip into a shortage if economy recovers a little bit quicker than one might have anticipated.