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Redefine executes on water resilience strategy

Redefine executes on water resilience strategy amid growing concerns over outages

Johannesburg, 15 July 2024 – In response to growing concerns over the possibility of further water outages in South Africa, JSE-listed Redefine Properties is taking proactive steps. The company aims to improve water efficiency across its portfolio by reducing consumption and enhancing existing backup capacity as part of its water resilience strategy.

“While our focus has largely been on reducing water consumption, we are now in the process of developing further storage capacity to provide up to a five-day buffer in certain of our buildings in case of a major water outage,” says Sustainability project manager at Redefine, Victor Mathey.

In some parts of the country, water shortages have increased in frequency, with water supplies cut off for up to ten days in a row or more. Experts blame the issues on municipalities’ underdeveloped infrastructure and lack of infrastructure maintenance, which is impacting supply networks.

Lesotho’s Katse Dam, which forms part of the Lesotho Highlands Water Project and provides critical water supply to regions across the country, is scheduled to undergo major maintenance over a six-month period, beginning in September and continuing until March 2025.

“Further major outages are expected due to scheduled maintenance and ongoing infrastructure issues, and we are planning to get ahead by rolling out projects to establish on-site water backup at buildings to increase their water security should such outages occur.”

He said Redefine had already worked hard to ensure a significant capacity of standby water. “Currently, our installed storage capacity is 6,660 kL. However, to achieve a five-day buffer at our current water consumption levels, we need 38,000 kL. Therefore, our intention is to install new water tanks to guarantee sufficient capacity for up to five days.”

The Vaal River system and the Sterkfontein Dam are expected to have enough water in storage to last for the six-month period, according to the City of Johannesburg and industry participants, as the maintenance at Katse Dam is scheduled for the summer period.

Even so, there continues to be massive undersupply, particularly in Gauteng. Gauteng’s water supply issues stem from a nine-year delay in the Lesotho Highlands Water Project Phase 2, exacerbated by a rising population. Until the project is completed in 2029, the province will face periodic water outages, as demand surpasses supply.

“The undersupply doesn’t only impact areas like Sandton, Rosebank, and Bedfordview but also rural areas with inferior water infrastructure. By reducing consumption and creating water security at our buildings, we are actively investing in the sustainability of Redefine’s assets. This ensures that our buildings remain functional during outages by alleviating demand on the various metro infrastructures, especially where such infrastructure incorporates borehole systems. These action plans extend beyond Gauteng, as demonstrated by the ‘day zero’ infrastructure projects installed at our Cape Town-based assets.”

Mathey added that by adding more backup capacity, Redefine will lessen demand on the municipal water system when its capacity is under pressure, allowing the limited supply to instead benefit nearby communities.

Interventions implemented to reduce demand on water resources

Following the implementation of a series of water reduction initiatives, Redefine has seen a 165 mL reduction in consumption across its SA portfolio over the last two financial years. This far exceeds initial reduction targets of 74 mL year-on-year and demonstrates that related interventions, notably the rollout of water efficient toilets, such as Propelair, and smart metering installations, are beginning to bear fruit.

Johann Nell, Head of development and industrial asset management at Redefine, says that Redefine made use of a digital water monitoring system at many sites, with this infrastructure being rolled out at others currently.

 “Digital monitoring enhances proactive property management by immediately notifying us should there be a change in a building’s water consumption profile. Whereas historically, readings were taken at a wider frequency of time, making it difficult to identify and tend to issues such as a leak immediately.”

An example of the significant reduction and saving that the monitoring system has enabled is Ushukela Industrial Park, where water consumption decreased from 1,062 kL in January to 399 kL in February after a leak was discovered and investigated right away.

Furthermore, the installation of over 2,000 Propelair toilets has been highly successful in reducing overall water consumption throughout our office and retail portfolios. Propelair toilets use over 80% less water than conventional water flush toilets. For instance, Golden Walk Shopping Centre experienced a 50% decrease in consumption, which was directly attributed to Propelair installations.

Nell said Redefine remains focused on introducing further interventions that sit mostly at an operational level, including monitoring and proactively managing consumption, especially at big buildings where there are often leaks, running toilets, dripping taps, and leaky irrigation systems.

“These interventions, together with the expansion of our backup storage capabilities, will further improve water efficiencies within our properties and ensure the resilience and operational continuity of our assets in the case of major water outages,” Nell concludes.

South Africa’s office sector recovering with increasing demand for space in some nodes

As the return to the office continues to gain momentum, demand for office space is increasing, and vacancies are declining with an improvement in property fundamentals.

Real estate investment trusts (Reits) who recently published their results point to the recovery of the sector with demand for space exceeding limited supply especially in certain Cape Town nodes, with rental growth reported in some instances.

SA REIT Association CEO, Joanne Solomon commented: “Some of our members with exposure to offices are cautiously optimistic about the sector. Vacancies are falling though negative reversions still persist within certain portfolios.”

“In many global markets [South Africa included], many workers continue to return to the office. Amenity-rich and quality buildings in key locations continue to see improved property fundamentals, demand for space and slight growth in rentals.”

“Flight to quality is driving demand for prime offices as tenants see value and opportunities to upgrade from secondary buildings or locations,” said Solomon.

According to the Sapoa Office Vacancy Report for the first quarter of 2024, national vacancies reduced slightly from 16.7% in 2022 to 14.7%, but rentals declined 6.2% year-on-year after accounting for inflation.

Cape Town offices recorded the lowest office vacancies of 6.8% – the lowest rate recorded since 2009. Nationwide, nearly 60% of prime office buildings were fully let compared to 42% recorded at the beginning of the Covid-19 pandemic.

“The reduction in office vacancies indicates an improvement in demand for offices – assuming the decrease is not attributed to disposals or conversions of office space to residential for example,” said Liliane Barnard, CEO & Portfolio Manager at Metope Investment Managers.

Barnard said the decline in rentals reflects ongoing pressure on rental income from the office sector, adding that property valuations remain under pressure.

“The outlook for the office sector is cautiously positive, and a recovery in the South African economy will result in declining rentals turning positive. Though reversions have been negative – this rate of decline is slowing which suggests a potential levelling out as demand picks up – in the Western Cape, this is already happening with rental growth experienced in some locations,” said Barnard.

Growthpoint Properties said across its portfolio, vacancies are reducing, and though rentals have been stagnant over the past few years, growth in rentals is now evident in the coastal regions.

“Vacancies seem to have peaked – arrears are back under control, and we are seeing more demand from tenants inland, while our coastal properties are relatively well let,” said Paul Kollenberg, Growthpoint Properties Head of Asset Management: Office.

Delta Property Fund, the specialist sovereign-underpinned property fund renewed 55 leases and signed 69 new leases for the financial year ended 29 February. Of the 55 renewals, 24 related to sovereign tenants with the balance being to the private sector with average lease terms of 28 months. On new leases, only two related to sovereign tenants with the rest being the private sector.

“Various interventions such as having a dedicated team of leasing specialists, discounted rentals, intensified marketing campaigns and broker engagements with attractive incentives have resulted in vacancy reductions and tenant retention while minimising operating expenses,” said Tumelo Applegreen, Senior Asset Manager at Delta Property Fund.

Applegreen said due to these interventions, post year-end, Delta conclude 15 new leases to date for the 2025 financial year.

Growthpoint Properties offers incentives on certain buildings, with deals tailored to suit individual tenant requirements. The group’s strategy is to reduce office exposure to smaller buildings in nodes that are not seeing demand, as well as sell non-core assets for conversion to residential or other uses.

Delta which continues to sell non-core assets, transferred three properties during the 2024 financial year, with a further three transferred post year-end, and another four in the process of being transferred.

“We are still finding buyers with appetite for our assets – our mandate is to sell at market value or higher which implies a prolonged and difficult negotiation process to close a deal,” said Applegreen.

Barnard said taking a long-term view and believing the economic fortunes will improve bodes well for the recovery of the office sector. Location will be key – meaning offices close to transport hubs as well as prime buildings or offices with green features such as back-up power and water, electric vehicle charging stations and bicycle racks for example, will experience high demand.

“The sector may be worth investing in for long-term gains if economic conditions improve and rental declines stabilise. However, in the short-term, the sector may continue to face challenges due to economic uncertainties and shifts in work patterns,” said Barnard.