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New hope for investors in derelict office blocks

by Ofentse Sefolo
New hope for investors in derelict office blocks

Wetton, a derelict office block in a predominantly industrial part of in Cape Town’s Southern Suburbs, has been given a new lease on life through conversion into a multi-tenant industrial park – now known as Wetton Works. The new industrial space helps meet the growing demand for smaller distribution centres located closer to residential areas as e-commerce gathers momentum both locally and globally because of the Covid-19 pandemic.

Rael Levitt, CEO of Inospace says, “Online shopping was just gaining momentum in South Africa when the pandemic hit, disrupting value chains and logistics around the world. In anticipation of the impending shift towards so-called micro-fulfilment centres, keeping only the most popular products that can be replenished easily, we began aggressively pursuing a strategy of setting up small-format, industrial-based parks targeting urban neighbourhoods.”

Wetton Works is located on a site that until acquisition was standing vacant. The derelict property had become an eyesore and was frequently vandalised, much to the chagrin of the local business community.

The Wetton Works business park is a case study in repurposing an office block into a small-format logistics park servicing 35 tenants ranging from food production to online retail. Not only is it Inospace’s first park in the Southern Suburbs, it is also the first time an office block has been changed into a multi-let industrial park.

The new normal
The economic and social effects of the COVID-19 pandemic have accelerated the decline of offices as an asset class. The future of offices still depends on how the pandemic plays out and whether large numbers of office workers will head back to work. However, the picture is already becoming clear with many large office blocks in prime locations standing empty.

These days many goods may never see the inside of shopping centres, and many administrative workers do not need to be based at an office. However, every item needs to be manufactured, stored or distributed somewhere. The increased demand for Inospace’s parks and spaces demonstrates how much multi-let industrial real estate has expanded and will continue to do so.

Functional workspace is now available at what use to be a derelict office park.

Declining commercial property value
“Estimates are that office property values in 2021 will decline between 20% and 25%,” says Rael. “The pandemic has been called an accelerator, fuelling trends that were already on track. Industrial is the prime example. The market has in many ways been a beneficiary of the pandemic. On the other hand, office and retail assets were already set for major changes and now those changes are hitting harder and faster than anyone expected.”

Throughout the world, investors are asking how to repurpose and reinvent emptying shopping malls and office blocks. A big opportunity exists and Wetton Works is our live example of how it is possible to do that.”

“With their relatively low-cost structure, these business parks provide companies with the ideal avenue to introduce new products and brands with relatively low investment. Inospace’s first Southern Suburbs business park is a case study in change of use,” concludes Rael.

Refurbished, the business park now provides an opportunity for a ready flow of goods to retail locations within short distances and for final-mile delivery, creating new infrastructure and supply chain value.

For more information, please visit: www.inospace.com.

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