By the third quarter of 2025, South Africa’s logistics property market mirrored an expanding economy. Real GDP grew 0.8% in the second quarter — the strongest pace since mid-2023 — and it is tracking about 0.9% for the year. Growth is led by manufacturing (up 1.8%), mining (up 3.7%) and trade (up 1.7%), but is weighed down by weak investment and exports as well as chronic infrastructure bottlenecks.
Against that backdrop, logistics property sits close to its peak. National vacancies are just 3.8%, the lowest in a decade — Cape Town at near 2%, Gauteng and KwaZulu-Natal at below 5% — while rents are still rising about 7% year on year. Developers are active again, but projects remain mostly pre-let and conservatively financed as high debt costs keep speculation in check.
The fundamentals remain solid: full warehouses, dependable tenants and sticky rental income, yet the signs of maturity are visible in rising capital costs, thinner margins and swelling pipelines as economic momentum cools. The country’s logistics sector is at two o’clock on the economic clock — late expansion, not yet in downturn.
South African real estate investment trusts (Reits) have long equated near-full payouts — about 95% of income — with investor appeal. But with valuations still 20%–30% below NAV and borrowing costs at near 10%, that generosity now destroys value. Paying out everything leaves no internal capital, forcing Reits to issue equity below book or borrow at steep spreads.
For Equites Property Fund, the trade-off is obvious. Its 8.2% dividend yield now trails the 9% 10-year government bond, erasing the risk premium once earned for holding property. To justify the risk, investors need growth, and growth requires retention. Each rand reinvested in pre-let logistics projects yielding a 13%–15% internal rate of return compounds above the 12% cost of equity.
A lower payout, about 85% (from the current 100%), would free hundreds of millions annually for self-funded developments, reducing leverage and growing NAV per share. That’s how global leaders such as ProLogis and Goodman Group sustain double-digit compounding through cycles.
Triple-net leases underpin Equites’s resilience — predictable, inflation-linked and capital-light. About 90% of its portfolio follows this model, with tenants covering maintenance, insurance and municipal costs. That keeps operating costs below 5%, vs 15%–20% for gross-lease Reits, and supports steady 3%–4% annual income growth on leases averaging 12 years with 5%–7% escalations.
Yet that same stability limits upside. Escalations are contractual, not market-driven, so when demand surges, rents can’t reprice quickly. Recent renewals show uplifts slowing from 8%–10% in 2023 to 5%–6% in 2025, roughly tracking inflation.
Triple-net leases underpin Equites’s resilience — predictable, inflation-linked and capital-light
When a logistics Reit such as Equites reaches the end of a 10- to 15-year lease, the clock resets to negotiation. Renewals are the norm. Industrial tenants are tied to sites engineered for their operations, with customised racking, power and yard layouts that are expensive to duplicate. Relocating can cost 10%–15% of annual turnover and disrupt months of production, which is why renewal rates in institutional-grade portfolios exceed 85%–90%.
At rollover the economics shift. After years of 5%–7% annual escalations, in-place rents can sit 10%–15% above market, leading to 5%–10% negative reversions. Still, renewals typically lock in fresh 10- to 12-year terms with inflation-linked escalations. In prime logistics nodes such as Cape Town’s Airport Industria or Gauteng’s N3/N12 corridor, reversions are milder, at 3%–5%, because space is scarce and relocation costs remain prohibitive.
A logistics asset’s value typically softens in the last five years of its lease as investors price in renewal risk. A property trading at an 8% cap rate with 10 years of income certainty might reprice to 8.5%–9% when only five years remain — a 5%–10% markdown driven more by perception than by probability. The effect is sharper for single-tenant assets, where vacancy risk looms larger than in multitenant parks.
For Reits such as Equites, the decision point comes three to five years before expiry. If renewal talks are advancing, holding pays off. Once a new lease is signed, yields compress and fair value “resets” higher. But for noncore or secondary assets, this same window can be optimal for sale: pricing still reflects remaining lease income, while the buyer assumes renewal risk.
Equites is already applying this discipline abroad. The group has begun a staged disposal of its mature UK portfolio, including the sale of its DPD Group asset in Burgess Hill for £17.65m at a 5% yield. The proceeds, along with other UK sales totalling R668m in the first half of 2025, are being redeployed into higher-yielding South African logistics developments. Once the programme is complete, management expects the UK exit to reduce group loan to value towards 25% and lift blended development returns above 13%.
With 98% occupancy and assets in prime low-vacancy logistics nodes, Equites usually benefits more from holding and renewing than from early disposals. Renewal restores lease tenor and cash flow certainty; selling too soon crystallises the duration discount.
Globally, the Reits that created the most value over the past decade — ProLogis, Goodman Group and Segro — all stayed focused on large-box logistics, compounding shareholder returns at 12%–14% compound annual growth rates, nearly twice their diversified peers. Their strength lies in combining long-term, inflation-linked cash flows with structural growth from e-commerce and supply-chain reshoring.
Even through rate cycles, they kept occupancies above 97%, rents rising 6%–8% and funds from operations growth of 8%–12%.
Equites sits in that same lane — and should stay there.
