Developers move on investment-free CBDs
| Most property funds let innovators do the work before committing to areas blighted by ’white flight’
PRIVATE developers are set to monopolise the central business districts of South Africa’s major cities as some real estate investment trusts ignore urban renewal programmes in those areas.
Urban development and regeneration company Propertuity has poured R1-billion into the Maboneng Precinct in Johannesburg’s eastern CBD. The property developer has been the main industry player in the redevelopment of the previously underutilised area.
“We look to go to old, neglected neighbourhoods, find value in them and regenerate those places,” said Jonathan Liebmann, Propertuity founder and CEO.
Propertuity, which owns 50 buildings in the area, also hosts the food and design market Arts on Main, one of many markets blossoming in the CBD.
But despite Johannesburg’s inner-city resurgence, it still remains largely underdeveloped.
Liebmann said Propertuity was the only property developer bringing “anybody but poor people in”.
The city should be able to provide space for upper-, middle- and lower-income groups to address the disparities in their living standards, he added.
One of the challenges facing Propertuity when it was developing the Maboneng Precinct was changing peoples’ perceptions about living in the city, said Liebmann.
White urban dwellers who moved to the northern suburbs also moved capital from the city. “There was a huge ‘white flight’, followed by black money. It’s kind of sad that ‘white flight’ happened and then new black money followed the white capital,” he said.
Sandton, the most valuable real estate in Africa, is an obvious choice for South Africa’s conglomerates.
Stanlib’s head of listed property, Keillen Ndlovu, said the challenge for corporates in Johannesburg’s inner city was the lack of parking space.
“Most corporates need four or five bays per 100m², whereas in the CBD you are looking at two bays or so per 100m², which is not enough to attract big tenants in the space,” he said.
Ndlovu said that although property companies such as Arrowhead, Delta Property Fund, Octodec Investments, Rebosis Property Fund and SA Corporate Real Estate had invested in the CBD, “listed property companies are more income-focused, so they bring in assets that can generate income. They are not mainly into development. They are springing mature assets.”
He estimated that listed property companies were looking at yields of between 9% and 11% when they invested in inner-city development.
It would be difficult to calculate how much listed property companies would generate from their investments in the city, as most of the properties they acquired were conversions from old office to retail space, he said.
Conversion has been the code word for Cape Town’s CBD since property owners developed a 1.6km² improvement area there known as the Central City Improvement District.
Its chairman, Rob Kane, said Cape Town differed from other metros such as Durban and Johannesburg in that there was low demand for residential accommodation in the CBD.
“People living here [were] a contributor to the urban plight and disinvestment that the CBD had seen,” said Kane.
But residential occupations had increased significantly, from 650 people 10 years ago to about 6 000 at present.
“[The] CCID is set up to improve an urban area that has fallen victim to ‘crime and grime’, which, of course, results in urban flight to other suburbs,” he said.
Listed Cape Town-based Fairvest’s investment property portfolio spans 31 commercial properties, valued at R104.6-million and comprising 123 087m².
Fairvest has not yet invested in Cape Town’s CBD.
“I just don’t think it’s been a focus of any large funds. When we listed our business, we saw a gap in the market, and the gap was the CBD’s outer-lying areas, the lower LSM [Living Standards Measure] markets,” said holding company CEO Darren Wilder.
“We’ve had a look at a lot of the Cape Town CBD retail opportunities. Part of our strategy is to acquire assets in the CBDs because that is really servicing our markets at this point.”
Investment in retail is one of the reasons JSE-listed Octodec has wormed its way into Johannesburg’s inner city.
Octodec financial director
Property companies are not into development, but springing mature assets Our strategy is to acquire assets in the CBDs because that is servicing our markets
Anthony Stein said the company had invested in Johannesburg when property prices were low.
“We saw an opportunity to do what we are doing in Pretoria, and that’s to fix up properties, convert them into residential and start fixing up the retail to let it out to decent tenants.”
Octodec’s investment portfolio includes property manager City Property, which manages more than 90 properties in the Johannesburg CBD.
Stein, the financial manager of City Property, said investments in the city were a perfect opportunity to take advantage of existing infrastructure.
“You’ve got your streets, water and electricity supply . . . a city that has a transport system and existing buildings with existing town planning.”
But developers who want to lay their foundations in South Africa’s inner cities will have to compete with the more established private industry players, such as Liebmann, who believes that the city is a far better option than suburbia.
“Sandton is like being halfway to Australia,” he said.