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Introducing Pay As You Go Leases

Rael Levitt
March 31, 2020
Article
Pay As You Go Leases

A report recently issued by US-based real estate firm CBRE highlighted how the ongoing Corona virus pandemic is drawing significant interest in on-demand warehousing.

A report recently issued by US-based real estate firm CBRE highlighted how the ongoing Corona virus pandemic is drawing significant interest in on-demand warehousing.

In the report, entitled, “On-Demand Warehousing: Opportunity in a Period of Uncertainty,” CBRE explained that this interest is characterized by short-term leases for relatively small size spaces, coupled with the uncertainty caused by corona virus related to retailers’ and wholesalers' ability to maintain necessary inventory levels, is a major driver as to why on-demand warehousing has the potential to become more prevalent in the future.

Inospace in South Africa has been focusing on flexible leases combined with a  range of free business facilities and solutions, since its inception in 2017. Now we are offering the ultimate form of flexibility - monthly on-demand rentals under a“pay-as you-go” tagline.  

The growth, or emergence, of on-demand warehousing serves as a response to the increasing number of supply chain challenges that businesses are up against.  Many users of warehouse and storage space do not want long-term leases in a period of inventory fluctuation and uncertainty. This situation has been rapidly compounded by the current economic and geopolitical climate which has resulted in supply chain uncertainties, specifically for inventory procurement, which has made things difficult for companies to make decisions related to long-term distribution.

It is true that South African businesses, including industrial occupiers, are up against a host of issues, specifically relating to corona virus and the country’s recent credit rating downgrade. Industrial demand is largely driven by the economy, and as that takes a hit by everything shutting down, it will likely impact rental pricing. Dynamic or fluctuating rental pricing, much like hotel room pricing, is something that we see coming into all commercial property.

Prior to the corona Crisis, South Africa’s weakening economy was already fueling the demand for short-term leases, but the recent disruption to the economy has turbo boosted this trend. The range for on-demand warehousing spaces, in terms of length and square-metres, are typically less than 3,000 square metres. Lease length periods are typically the monthly “pay-as-you-go” offering or for businesses that want more certainty, 2-3-year leases are offered with 2-month lease breaks given in the tenants favour.

As for what type of logistics and supply chain stakeholders represent the primary occupiers of these industrial spaces, we believe that both delivery and e-commerce businesses are now going to boom in South Africa. Export-focused manufacturers will also see a boost with the collapse of the Rand. This along with other factors including possible lower labour costs may fuel the local manufacturing industry that has been unable to compete with cheap imports from China and other parts of the world.

This week we announced our "Pay-As-You-Go" offering, and on day one we have had interest from many of South Africa's largest retailers and groups. They need immediate space for both slow and fast-moving goods. And they are not interested in signing lengthy long-term leases.  

Recently several national retailers have unilaterally announced that they are not paying their rental to their retail landlords. This has triggered a significant disruption in the traditional landlord-tenant relationship, but these are the same companies that are seeking short-term on-demand warehousing options to place their stock.

Traditionally, Inospace focused on small and medium-term businesses but our view is that all businesses will want the type of month-to-month warehousing solutions that we offer. Looking ahead, we believe that large businesses and corporates will also start utilising on-demand warehousing and industrial to place stock which has traditionally moved through more expensive retail channels.  

Our secure serviced business parks offer an environment where businesses can store and distribute stock and when supply lines eventually stabilise, they have no long-term commitments and can then make longer term decisions.

Find out more about our Pay As You Go Office Leases

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