Fortress Real Estate has significantly reduced its office portfolio in South Africa, halving its holdings to prioritise premium-grade logistics and convenience retail, a strategy it says, is paying off.
At the end of December 2024, the Group’s office portfolio comprised 30 buildings valued at R1.3 billion with a GLA of 145 906 m2 and a vacancy rate of 24%. As at the end of January 2025, its office portfolio comprised only 15 buildings, representing less than 2% of its total portfolio, with a GLA of 75 000 m2.
Fortress commenced its office reduction strategy in 2015 in line with its focus on developing and letting premium-grade logistics real estate in South Africa and Central Eastern Europe (CEE), as well as to grow its convenience and commuter-oriented retail portfolio.
However, its exit from the office portfolio was hampered by a downturn in the office market both prior to and post the pandemic.
“We inherited a large office portfolio due to historic corporate actions, and we took responsibility for a difficult situation. We then developed a plan to take advantage of where we saw the long-term growth in the real estate market that worked in our favour,” says Bruce Collins, head of Asset Management for Fortress.
The proceeds from the non-core asset disposals have been recycled into the Group’s logistics development pipeline and retail refurbishments, extensions, and redevelopment.
Since 2019, the group has sold 20 office assets – out of 35.
“This is by no means a ‘fire sale’ – we are realistic about the values we can achieve, and we are achieving sales prices around our book value,” said Collins.
Fortress said it has seen increased demand for its refurbished offices in Bryanston due to clients returning to the office in the past two years. The hybrid work model and requirements for fresh air and open spaces for employee wellness after the pandemic have resulted in demand for smaller office spaces with spacious outdoor areas.
Four of the six Bryanston office parks in the Fortress portfolio have been refurbished after consultation with tenants and brokers. The refurbishments included painting, creating attractive outdoor and reception areas, upgrading balconies, and installing energy-efficient lighting and generators where needed. These upgrades have enabled Fortress to attract and retain tenants.
Collins said that businesses with a large contingent of staff in the office are taking advantage of the current market conditions to purchase the buildings they occupy.
He said that office properties in the heart of Sandton are often too expensive for residential conversion and lack the generic design required. However, Fortress’s portfolio of decentralised offices in residential areas like Bryanston, Fourways, Sunninghill, and Rivonia is proving to be very sought-after.
“In addition, vacant offices are being bought by residential developers who can capitalise on residential demand in urban areas. With the decline of NOI (Net Operating Income) in office, valuations decreased. We are now at a point where it is feasible to convert to residential.”
“We will achieve better long-term, risk-adjusted returns by using the capital from selling office assets and deploying it into logistics and retail.”
With its office portfolio reduced to less than 2% of total assets coupled with a significant decrease in vacancies, Fortress says it demonstrates its ability to adapt and thrive in an ever-changing market.
Key logistics projects in South Africa include warehouses for John Deere, Crusader Logistics, and Liquor Runners, all progressing on schedule.
Steven Brown, CEO of Fortress, said: “Our strategy of focusing on high-quality logistics and commuter-oriented retail assets has continued to deliver robust results. With strong demand for logistics space and steady growth in retail turnover, combined with strategic capital recycling and sustainability initiatives, we are well-positioned for sustained growth and value creation for our stakeholders.”
Shares in the group are up 21.79% over the past year, but down nearly 8% in the year to date.
