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05 October 2022

Supplied by WSP

Michelle Jackson, MD of Property and Buildings at WSP in Africa and Roxanne Fordyce, Transaction Services: Head of Tenant Representation at Cushman & Wakefield | BROLL, discuss how ongoing loadshedding is affecting the commercial and industrial property markets in South Africa, and how businesses can mitigate this impact by joining the race to achieve net zero.

The COVID-19 pandemic hit international property markets hard, and South Africa was not exempt. Post-pandemic, the industrial property market is recovering very well, seeing annual growth thanks largely to increased demand for logistics and warehousing.

“This demand is driven by the growth in online shopping, which skyrocketed during repeated lockdowns, and hasn’t subsided much post-pandemic,” says Roxanne Fordyce, Transaction Services: Head of Tenant Representation at Cushman & Wakefield | BROLL. “As a result, many new developments have taken place over the last two years, and the industrial market is even seeing some speculative developments going up, which is quite unlike its usual approach.”

New industrial development rentals are higher than they have ever been. The data centre market is also experiencing growth and expansion, leading to largescale new developments which have dramatically increased land values in key industrial nodes.

In sharp contrast, the office market continues to struggle with an oversupply of space, especially in premium nodes like Sandton where there is approximately 380 000m2 of vacant space. “Office development is still at a standstill, resulting in developers diversifying into the residential market with largescale office conversions,” Fordyce says. “Poor office demand was exacerbated by the repeated lockdowns as companies realised that staff could be productive working from home and started downsizing their office space, with some giving it up altogether. However, the pendulum has started swinging again as several corporates are realising that collaboration, innovation, mentorship, and other critical measures of productivity require a physical presence. These companies are now moving towards a hybrid model while some are even reverting to office attendance five days a week.”

Increased load shedding is also driving a return to the office, where generator power is available to employees who do not have sufficient back-up power at home to remain productive during extended or multiple outages. This despite increased commuting times as traffic lights don’t work during loadshedding.

Michelle Jackson, MD of Property and Buildings at WSP in Africa says: “Since load shedding commenced in 2008, many businesses turned to diesel generators for resilience in their power supply, allowing for their entire power load to be accommodated on generators. In 2022, load shedding is still here and will be for some time to come so that commercial and industrial property developments must continue to incorporate alternate or back-up power contingencies.”

The steady increase in the cost of fuel in South Africa since 2016 is further exacerbated by the current war in the Ukraine and the world’s reliance on Russian energy. This, combined with global company and government commitments to achieving net zero, brings the use of generators for power resilience into question. To offset the reliance on both expensive fossil fuel and the grid, and to mitigate the negative environmental impact of generators, the use of a renewable energy mix – solar, wind, biofuel and so on – is becoming more necessary.

“There are several options open to businesses,” Jackson says. “They can supplement traditional generator back up power with renewable energy. Solar is the preferred solution because it is readily commercially available, cost effective and seems simple enough to retrofit compared with other renewable solutions. However, it requires large amounts of space and the lighter steel frames of existing industrial buildings do not always allow for roof-top solar. As such, a hybrid system of solar with battery backups for continual operations is more likely to gain traction. Furthermore, the ability to wheel ‘green power’ through the grid allows businesses to buy clean energy and pay wheeling costs to Eskom.”

Power-hungry businesses – like mining houses and datacentre campuses – have the option to generate up to 100MW of renewable power without a licencing agreement with government. “This opens the industry up to a variety of generating options,” Jackson confirms.

Adding renewable energy generating capacity to commercial and industrial buildings alone will not solve the energy crisis, though, Jackson points out. “To reduce reliance on generator power, companies are prioritising their energy loads. For example, industrial businesses are reviewing their processes to take advantage of off-peak power and are replacing and upgrading older equipment. Eliminating non-essential power loads – such as not allowing equipment to run all day if it is only used part of the time – will also make a significant difference in this regard.

“Businesses are also moving away from fully heated and cooled buildings, instead embracing passive heating and cooling solutions or decoupling their HVAC systems from fresh air supply,” Jackson says. “Ultimately, the private sector must work with government and power supply authorities to find solutions to resolve the power issues.”

Fordyce agrees: “Globally, industrial tenants are looking for smart solutions found in new developments to meet demand for a reduced carbon footprint. New industrial developments present an opportunity for structural and technological advances in facilities with an emphasis on decreasing energy and water consumption and efficiencies in building design. Locally, the Green Building Council South Africa’s (GBCSA) changes to the Existing Building Performance (EBP) rating tool to allow for the inclusion of industrial facilities is indicative of the increased demand for cleaner and greener factories and warehouses.”

“The increased cost of fuel is creating a tipping point that is pushing the industry to implement greater resilience but at lower operating costs. In turn, this allows net zero to gain momentum from an energy reduction perspective. It has become a global trend gaining local traction as developers and tenants look for greater resilience and less reliance on Eskom,” Jackson concludes.

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