Bruce Colins
Fortress
Head of Asset Management
Tandi Jacobs
Cushman & Wakefield | BROLL’s Workplace Solutions
General Manager
Fortress Real Estate’s long-term strategy of streamlining its diversified portfolio to focus on premium-grade logistics and convenience retail is paying off.
At 31 December 2023, the office portfolio comprised 30 buildings and was valued at R1,3bn. Its total GLA was 145,906m², and the vacancy rate was 24%. As of 31 January 2025, the office portfolio now consists of only 15 buildings, which represents less than 2% of the total Fortress portfolio, with a GLA of only 75,000m².
Fortress commenced its strategy to reduce its office portfolio in 2015 in line with its focus on developing and letting premium-grade logistics real estate in South Africa and CEE, as well as growing its convenience and commuter-oriented retail portfolio. However, the strategic exit from the office portfolio was hampered by a downturn in the office market both prior to and post the pandemic which accelerated the acceptance of working from home, a trend that looks to be changing once again with office workers being recalled by many larger corporates.
“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,” said Bruce Collins, Head of Asset Management for Fortress.
The proceeds from the non-core asset disposals have been recycled into the logistics development pipeline and strategic retail refurbishments, extensions, and redevelopment – representing a better long-term, risk-adjusted return on capital.
“Since 2019, we have sold 20 office assets (out of 35). To do this, we first had to invest in refurbishing some buildings, installing backup power and water sources, and increasing security. These aspects make office parks a more appealing workplace and make selling them much easier. We were quite innovative in our approach,” added Collins.
“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. To put it bluntly, our strategy around the office portfolio is to ‘fix it, fill it, sell it,’” said Collins.
“By the end of 2024, we completed seven sales*: three to owner-occupiers and four to residential developers, effectively halving our office portfolio in two years,” added Collins.
Cushman & Wakefield | BROLL expects more office real estate deals to flow, increased office space take-up and rental growth driven by solidified hybrid work policies, an evolution in tenant-controlled office designs, and the re-emergence of new developments in some locations. “As hybrid work models become the norm, businesses are prioritising the flexibility of their workspaces. The result is a new trend of tenant control and customisation that echoes the growing importance of the tenant experience in commercial real estate. This is resulting in the rise of more customisable spaces being offered by landlords, which allow tenants to personalise office layouts, technology systems and amenities,” said Tandi Jacobs, GM at Cushman & Wakefield | BROLL’s Workplace Solutions.
Fortress saw 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.
Fortress will continue refurbishing its office portfolio to improve valuations. In the current market, there is limited demand for office assets except from owner-occupiers and landlords converting offices into residential apartments.
“Our sales team has successfully sourced owner-occupiers who find it more compelling to own than rent their offices. Owner-occupiers consider replacement cost rather than investment return or initial yield when making the investment decision.”
“Businesses with a large contingent of staff in the office are taking advantage of the current market conditions to purchase the buildings they occupy. For residential developers, office properties in the heart of Sandton are often too expensive for residential conversion and lack the generic design required, given the architecture of these bespoke office buildings. However, Fortress’s portfolio of decentralized offices in highly sought-after residential areas such as Bryanston, Fourways, Sunninghill, and Rivonia is proving to be very sought-after. These areas offer attractive living conditions and proximity to work opportunities, making them ideal for residential development,” explained Collins.
“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.”
For Fortress shareholders, this strategy is a clear win. The company is fulfilling its strategic goals, positioning itself for future growth, and using the capital from sales to fund our logistics growth.
“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 the office portfolio reduced to less than 2% of total assets and a significant decrease in vacancies, Fortress demonstrates its ability to adapt and thrive in an ever-changing market.
