LINDSAY WILLIAMS: I’m of the view that perhaps people looking to invest in the listed property sector of the JSE should maybe look at portfolio’s that aren’t so overweight retail - with what’s been happening with interest rates maybe that sector is going to come off the boil a bit. Craig, the industrial property market from the interviews I’ve had over the last six months or so seems to be in the ascendancy, and you’ve got a fairly decent chunk of your portfolio allocated to industrial - how is the market at the moment?

CRAIG EWIN: We do have a good chunk of our portfolio in the industrial sector - that’s approximately 28% currently, and that will be going up to about 33% in fact on the back of a transaction that’s in the process of being implemented.

LINDSAY WILLIAMS: That’s the Collins Property Group acquisition?

CRAIG EWIN: Correct. That’s just shy of R1billion worth of property and it’s some 40 properties that are predominantly industrial, with long leases and tenants of substance - national tenants - so we are pleased with that acquisition...

LINDSAY WILLIAMS: That’s 20% of your total portfolio - how has industrial property been performing? Have you been able to command healthy rate increases for example?

CRAIG EWIN: Absolutely. We’ve been surprised on the upside where in the last six months through to 30 June of the industrial leases in nine of those - which makes up a good chunk of the industrial renewals that have taken place - we have seen price increases ranging from 12% to 47% in comparison with the rentals that were being paid at the end of those leases. So those were very healthy increases - the weighted average increase on those leases was some 28% overall, which is very positive for us. So that’s 28% up on the expiring rentals, and some 12% ahead of what we had budgeted which was really pleasant.

LINDSAY WILLIAMS: Yes, that’s very high indeed. Is this a simple function of supply and demand? Has the industrial sector been ignored by property companies and therefore a shortage has crept up on us?

CRAIG EWIN: Clearly it’s a function of supply and demand, and we have a situation where the better quality industrial space is in limited supply so rental levels are firming quite considerably. I think that’s reflected in the vacancy levels in industrial space generally where the IPD analysis has shown industrial vacancies of about 3%. In our particular portfolio we have less than 0.5% in vacant space or some 700,000 square metres of lettable area - which is very low in a portfolio context.

LINDSAY WILLIAMS: What type of industrial demand are we looking at? Is that small, medium or large enterprises - how would you characterise it?

CRAIG EWIN: That’s across the board, but the industrial space that we have within SA Corporate is larger in size, and ranges in the leases I’ve mentioned range from 2,000 to 10,000 square metres - but the firming in demand for industrial space is across the board there’s no doubt.

LINDSAY WILLIAMS: Geographically, where is the biggest demand?

CRAIG EWIN: That’s across all the areas - we’ve seen that in KwaZulu-Natal as well as in Gauteng, and also Cape Town for that matter where the prime locations in all of those centres are seeing the keenest demand. The other interesting thing we’ve seen is the ability to increase annual escalation rates as well - where in prior years that was around the 7%, 8% or maybe 9% mark because of the demand for space currently and the new rental levels that are being reached it’s possible for landlords to attract higher escalation rates and that’s the trend we are seeing…

LINDSAY WILLIAMS: You spoke earlier about your current split being 28% in favour of industrial moving up to 33% with the Collins Property Group acquisition - do you have a target that you’d like to reach? Would you want to go above 33%?

CRAIG EWIN: We will acquire properties that make sense and have attractive forward income streams in any sector, but having said that we do recognise that benchmarking ourselves against the IPD benchmarks is important so being a sizeable fund as we are now - with a portfolio in the order of R8billion - we will acquire further industrial property if it’s suitable. We do see value in the office sector, and we are relatively low in that at about 10% so we will seek to make office acquisitions going forward.

LINDSAY WILLIAMS: What about retail which we haven’t mentioned - is it cooling off?

CRAIG EWIN: Retail does tend to react quicker than the other two sectors, and that’s because of turnover clauses. They also tend to be shorter leases ranging from three to possibly five years, so you do have a quicker reaction to adjusting rental levels than what we would find in commercial and industrial property - but I don’t believe that it’s cooling off, and clearly portfolios need to have a good chunk of retail property because it has performed so well in the past and is likely to continue so going forward.