Cape Town Office market: active for some

Posted On Monday, 23 April 2012 02:00 Published by
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Increasing leasing activity for JHI suggests that the market is doing relatively well

The commercial property market in the Western Cape is reflecting increased positive sentiment.  JHI Properties reports that during 2011 it concluded 255 leases in the region for 98 000sqm of office, retail and industrial space.

To put that in perspective, the Office Vacancy Survey indicates a total vacancy of just over 200,000sqm in the Metro, so this is indeed no mean feat!

Says Marius Basson, regional director for JHI Properties: “These leases represent a contract value in total of almost R360 million, including sizeable office space in Cape Town CBD for tenants comprising provincial government, banks and professional services. It is also encouraging to note the additional uptake achieved in retail and industrial space,” he says. In this regard among recent leases concluded by JHI is a transaction for 1600sqm of prime located industrial space in Montague Gardens.

Comments Selwyn Sharon, JHI Properties leasing, sales and investment broker: “A positive for the city is the major expansion of the highly successful Cape Town International Convention Centre (CTICC) - as well as a 10 000sqm retail node, hotel and new flagship hospital - further boosting Cape Town’s reputation as a global business destination, in addition to being a renowned tourism destination. This is backed by the city’s infrastructural investment in new fibre optic cabling in order to upgrade internet connectivity of the CBD which will make Cape Town a top technologically attractive base for new business ventures - a move which will encourage further investment in the city’s CBD.

He says as the worldwide trend is towards urbanisation and densification of cities, the obvious choice for new investment and construction in Cape Town is the Foreshore, which in addition to the CBD offers easy access to the N1, N2, railway station and new IRT (Integrated Rapid Transit) network, with the latter being within walking distance of most Foreshore buildings.

Says Sharon: “Cape Town CBD has a land scarcity and as a result shrewd investors have begun purchasing large office buildings on the Foreshore with a view to extensively upgrading and modernising these, while still being very competitive with newer developments at Century City or in the heart of the CBD. On the Foreshore the only additions of significance over the past decade have been the CTICC, the prime grade Convention Towers office block and a number of hotels. As the world economy stagnated and even contracted since the recession in 2007, developers did not embark on new capital intensive projects in the city.

“With office vacancies in the city in the region of 86 000sqm (other sources indicate a higher vacancy - over 95, 000sqm as per OVS), landlords are able to reverse this trend through realistic expectations on rental rates and investing in upgrades to unlock value in their portfolios. At present opportunities exist to acquire well situated B grade buildings in the Cape Town CBD and refurbish to A grade quality, thereby meeting a demand for such space.”  eProp indicates that the CBD vacancy has in fact increased to over 12%.

Sharon says currently two new developments are taking place in the Cape Town CBD: a new building under construction for a large legal practice at 22 Bree Street;  and the largest office development in Cape Town – Portside, which is a joint venture between FNB and Old Mutual. Approximately 25 000sqm or half the Portside building area will comprise the new FNB headquarters. As a result this area together with the Foreshore is expected to become a hub for financial services and legal practices in Cape Town and the Western Cape.

“Over the past year developers with vision, taking advantage of the current low interest rates, have invested over R500 million in acquiring properties on the Foreshore,” adds Sharon. “These include Ingenuity Properties, which has consolidated an entire city block of office buildings by acquiring Atlantic Centre, which is in the process of undergoing a complete refurbishment, while their property on 31 Hertzog Boulevard has recently also been extensively upgraded. In addition, Vunani Properties has made a strategic purchase of the Foretrust Building, and planning has begun on a possible upgrade.”

Sharon says the entire Culemborg motor city area – located close to the harbour – and adjoining properties will begin seeing major planning and construction of new mixed-use buildings of up to a total of 240 000sqm over the next five to 10 years. Other projects underway in Cape Town include Newspaper House in the central city area, a building which is undergoing a complete refurbishment with the new owners, Ingenuity Properties, creating more offices and retail areas. The property on the corner of Castle and Burg Street is being rebuilt by Cape Empowerment Trust - the new owners, in a project which is expected to be completed by the end of 2012.

Renewed activity includes the Green Point area, where the old Satbel building is being completely refurbished with additional parking and extra lettable space, and which will become the new trendsetter on vibrant Somerset Road. Also in Green Point, 70 Prestwich Street is being given a complete upgrade with large floors now able to accommodate smaller tenants with A grade offices and top finishes. On the old Phoenix hotel site on the corner of Strand and Hudson Streets the Mirage project has commenced, thereby providing top end residential apartments in the De Waterkant area as well as a small retail component.

On the Gardens side of the city, the Wembley Square area has a newly completed addition comprising a sizeable office building while two commercial properties in nearby Roeland Street are currently being refurbished.

On aggregate for the SA Metro's, Cape Town's office market has the third lowest vacancy rate after Pretoria and Port Elizabeth.

Publisher: eProp
Source: JHI/OVS

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