Developers look to renovate some older buildings as needs change

OBSOLETE buildings are presenting big opportunities for savvy developers in South Africa.

Ken Reynolds, the regional executive in Gauteng for property finance at Nedbank Corporate and Investment Banking, said significant changes in technology, workplace practices and production requirements had resulted in an increasing number of commercial and industrial buildings becoming obsolete.

Reynolds said this had resulted in more developers and building owners identifying the massive redevelopment potential of these structures and were engaging in projects to bring them in line with current market requirements.

He said there were a number of factors that contributed to buildings becoming obsolete.

They included an increased reliance on information technology in the workplace that had made it critical for buildings to be equipped to deliver the latest in technology requirements while the same was true for air conditioning systems, which had evolved over the years.

“Many older buildings are simply not equipped for these needs and therefore lose their appeal and relevance,” he said.

Changing needs

Reynolds said another trend in modern day businesses that might put buildings at risk of obsolescence involved the shift from closed to open plan work spaces.

“In the past, an average office building would have allocated up to 30m2 per staff member. With the move to open plan workspaces, this allocation has reduced significantly to about 10m2 per employee, with this increase in employees creating additional challenges for older buildings in the form of insufficient common areas and parking spaces.

“These issues are particularly prevalent in many of the country’s central business districts and have contributed to many companies moving their head offices to other, more suitable venues,” he said.

He said obsolete buildings were not limited to office space as industrial structures that comprised harmful materials and low clearances were also undesirable.

He said it was also increasingly prevalent to separate employees from the potentially harmful materials used in the production processes, which was not necessarily the case when many older factory structures were designed.

In addition, the change in industrial activity from heavy to light engineering, as well as greater demand for warehousing and distribution, had seen a shift in the type of facility that companies required, he said.

Reynolds said while redevelopment presented significant opportunities for developers and owners, it was critical that they conduct thorough feasibility studies and market research before deciding what to do with a building that had become obsolete.

He said a key factor was understanding the demand for various types of properties in the area in which the obsolete building was situated.

“For example, due to the change in the nature of the demand in Braamfontein in Johannesburg from commercial to residential, many office buildings in the area have been refurbished into residential accommodation.

“Another example is in industrial areas such as Isando, where developers are splitting up huge buildings into multiple, smaller spaces to cater for the fact that businesses are requiring less and often different space from their previous requirements,” he said.

Reynolds added that in premier locations such as Sandton, buildings once considered Agrade that have become functionally obsolete as newer, more advanced structures were built around them, were ripe for development to earn a better return.

“In a given area, C-grade or Dgrade buildings still incur the same or higher overhead costs, such as rates and taxes, levies and maintenance, as P-grade or Agrade structures,” he said.

Renovation

“As such, in an area like Sandton, where premier spaces have traditionally been in demand and can command a premium, it makes sense for developers or owners to upgrade or redevelop these older builders,” he said.

Reynolds said another question many developers faced was whether to renovate or refurbish an existing building, or to rather knock it down and start again.

Brownfields projects, which involved refurbishing existing buildings, had the advantage of already having all the facilities in place, such as water and electricity, and approval for services and zoning, he said.

However, Reynolds said in some cases where the floor area ratio or clearance heights were unsuitable for the purposes for which the building would be transformed, it might be better to start from scratch.

“The biggest mistake developers make is underestimating the problems that they are going to find once redevelopment starts.

“Should the decision following a thorough feasibility study be to refurbish a building, additional contingency costs need to be factored in, especially for unforeseen challenges such as elevators that require replacement, massive plumbing, or electrical work that needs to be conducted,” he said.