Maritzburg real estate loses its lustre
New R400m project in KZN capital unlikely to woo back investors
● Over the past 15 to 20 years property developers have tried to pull KwaZulu-Natal’s capital, Pietermaritzburg, out of a dire financial position, but their interest in the town has begun to wane.
Developers say Durban is offering much stronger demand than its smaller cousin, and Liberty Two Degrees’ (L2D) recent R400-million injection into a mall in Pietermaritzburg is likely to be the largest commercial property investment for a while.
This significant real estate investment involved an extension to Liberty Midlands Mall, by far the most dominant shopping centre in the town.
Some developers are working on much smaller commercial projects in Maritzburg and the greater Midlands area, but the business case for the town is weak.
The Msunduzi local municipality, in which Pietermaritzburg lies, is held back by corruption and poor management. According to a November report from Auditor-General Kimi Makwetu, the financial statements submitted by Msunduzi for the financial year ending in June last year were not prepared in accordance with the requirements of the Municipal Financial Management Act.
The municipality also failed to provide information and documents needed as evidence on which to base the audit opinion.
Makwetu said the municipality had inefficient systems, and was unable to maintain its financial records.
The DA has said the municipality could be placed under administration for a second time since 2010. It follows that Durban is set to hog the attention of investors in the province for years to come.
Real estate services company Cushman & Wakefield Excellerate (CWE) and development economists Urban-Econ recently released their 2018 Africa report, naming Durban among eight African cities with the most untapped investment potential.
Jonathan Turner, CWE’s general manager of global occupier services in Africa, said Durban, home to the continent’s busiest port, would be larger than Cape Town by 2050. This was largely because of the abundance of developable land in the city compared with the lack of land in Cape Town.
One developer that has shown Pietermaritzburg some love is the Collins Group, but it too is focused on Durban.
“We follow demand, and currently there is more demand in Durban than in Pietermaritzburg,” says Graham Adams, leasing manager at Collins Property Projects.
There have been suggestions that if Durban gained momentum and large companies and multinationals opened offices and industrial groups opened production facilities, there would be positive spillover effects to Pietermaritzburg.
But Adams says Pietermaritzburg can’t rely on Durban and it is up to the local government and the business community in the town to re-establish it.
“I think they act independently of each other. I don’t think it follows that if Durban does well Pietermaritzburg will necessarily benefit. Maritzburg probably needs to establish itself as its own destination for its own reasons,” he says.
Financial services heavyweight Liberty has been a significant investor in Pietermaritzburg.
L2D, Liberty group’s listed property vehicle, relaunched Midlands Mall earlier this month, having spent R400-million on extending the shopping centre.
L2D and Liberty Holdings jointly own various shopping centres.
The largest mall they co-own is Sandton City, followed by Eastgate Shopping Centre and Midlands Mall.
Midlands Mall opened in 2003, when the town was in desperate need of a modern, sizable shopping centre. Its value has now increased from R1.8-billion to R2.2-billion following the latest extension.
A lifestyle centre made up of retail and leisure components was added, expanding its total size to a gross lettable area of 78 000m² from 56 000m².
L2D’s CEO, Amelia Beattie, says the mall has enjoyed strong footfall for a number of years as it caters for people in Pietermaritzburg and the greater Midlands inland area, which houses many of South Africa’s most prestigious private schools.
All the other retail centres in Pietermaritzburg are under 20 000m² in size, with the exception of the Greater Edendale Mall, a McCormick Property Development, which is just more than 32 000m².
Other listed property companies argue that a lack of business nodes has meant investing in the area is too speculative and that it would be difficult to compete with L2D.
Estienne de Klerk, the MD of Growthpoint Properties, says Liberty’s mall is an attractive asset which his fund may have owned under different circumstances.
“Growthpoint is a large metropolitan investor. When we formed in the early 2000s and the mall was being developed, it was an asset that we actually looked at acquiring, but it was too large for us at the point. We could invest in the Midlands in the future, but right now the towns there do not offer enough existing opportunities that would complement our portfolio,” he says.
Growthpoint’s rival, Redefine Properties, is also cold on the Midlands.
“Our long-term retail focus is on the key economic nodes of South Africa. The Midlands therefore does not fit our investment criteria, and we have no retail exposure in this area,” says CEO Andrew Konig.
The argument that Liberty’s dominant
We follow demand, and currently there is more demand in Durban
The Midlands does not fit our investment criteria Andrew Konig Redefine Properties CEO
mall effectively killed surrounding retail and mom-and-pop stores in the town is losing resonance, but the CBD has lost its lustre.
“The Midlands Mall has changed the dynamic of Pietermaritzburg, but the balance of areas have adapted to the change and continue to operate,” says Adams.
Miles Nel, an independent developer, says Midlands Mall has attracted consumer spend that would have gone to Durban.
“It has shifted regional shopping in the KZN Midlands from The Pavillion in Westville [in Durban],” he says.
This means new shoppers are visiting the mall as well as smaller stores near it. Nevertheless, there are concerns that the old Pietermaritzburg CBD is beset with crime.