As vacancies grow, Investec Property Fund will stomach lower rent for long-term leases

Investec Property Fund  owns office buildings including 30 Jellicoe in Rosebank.
Investec Property Fund owns office buildings including 30 Jellicoe in Rosebank.
  • Investec Property Fund reported that its vacancies increased to 10% in the six months ending on 30 September, from 3.5% in March.
  • But the property company said it is currently in advanced negotiations to let out large chunks of the vacant space.
  • It is willing to settle for lower rental reversions to secure long tenure leases.


Investec Property Fund says its leases that expired in the six months to end-September fetched noticably lower rental rates while tenants who did not renew and those who fell on hard times because of Covid-19 caused its vacancies to shoot up.

Although the Investec Property Fund has less than 25% exposure to retail property, it said in a trading update on Tuesday that vacancies are expected to increase to 10% for the six months ended in September, up from 3.5% in March. Not only is it dealing with vacancies, but the company also flagged longer void periods in its South African property portfolio.

The company said half of the vacancies that materialised during the lockdown period were a result of insolvencies and business failures.

Investec expects the vacancy rate to reduce to around 6% within next three to six months as it is currently locked in letting negotiations. But going forward, Investec Property Fund said it will be looking for "right leasing deals" like the 10-year lease it signed with some Massmart brands in order to insulate itself against short-term shocks that the commercial property sector has frequently experienced lately.

"I think in environment like this, it is opportune to lock-in well," said Andrew Wooler, joint CEO of Investec Property Fund. He said that while this may mean lower rental reversions when the company renews expired leases, the long tenure will make up for that.

Investec said it wants to preserve good tenants that were up to date prior to the lockdown by giving them rental relief and in doing so, the company has managed to extend their lease terms. In the UK, Investec thinks the refurbishing and repositioning of its assets to lease to new subsets of tenants will also drive down vacancies.

Investec said it was able to renew or rent out to new tenants 66% of its lettable space that that expired in the first half of its 2021 financial year which ends on 30 September. But this came with a negative rental reversion of 13.3% meaning that the company got lower rental rates for leases that has expired.

The company said it is in discussions that will "conclude shortly" about letting out more space expiring during the 2021 financial year and may even secure leases that were earmarked for 2022 early.

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