Rental and Vacancy Rates - US / SA Comparison 2000

Posted On Friday, 15 February 2002 02:00 Published by
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Despite tight economic business conditions for the first half of 2000, the property market in South Africa has been stable - office vacancies have been declining marginally since December last year, industrial rentals appear to be moving out of the doldrums, and retail development sentiment continues to remain positive. With positive and improved economic prospects in 2001, the property market is set to improve significantly.

Despite tight economic business conditions for the first half of 2000, the property market in South Africa has been stable - office vacancies have been declining marginally since December last year, industrial rentals appear to be moving out of the doldrums, and retail development sentiment continues to remain positive. With positive and improved economic prospects in 2001, the property market is set to improve significantly.

This is the general picture emerging from research conducted by JHI Real Estate's research division.

Industrial rentals began moving out of a trough during the second quarter with the improved rental performance being largely attributed to a low base. However, it appears that much of the rental growth is being experienced by small companies; furthermore manufacturing confidence needs to improve substantially if industrial rental levels are to grow and if export-led growth is to positively impact the sector.

Average Prime Industrial Rentals: 2nd quarter 2000. (Rode)
 250m2 500m2 1000m22500m25000m2
Cape PeninsulaR 18.16R 14.50R 13.40R 12.01R 10.75
West RandR 16.25R 11.27R 9.75R 9.45R 9.40
Durban MetroR 16.22R 14.30R 12.86R 11.75R 10.20
East RandR 15.29R 13.20R 11.77R 10.88R 9.91
Central WitsR 14.79R 17.20R 14.38R 12.34R 11.19

Industrial performance has remained fairly constant over the past few years with the exception of last year when returns fell to a dismal 0.5%. 'However based on SAPIX figures, industrial property investments have demonstrated superior returns over some of the other sectors', comments JHI Chairman, Les Weil. In June 2000, for example, almost 40% of the 225 000 square metres of planned space comprised industrial and warehousing projects.

In the office sector, the Western Cape evidenced the strongest total returns over the past five years (14.4% per annum) compared to 8.4% and 5.9% in Gauteng and Kwazulu Natal, respectively. JHI contrasts the poor performance of the Johannesburg CBD (-19%), Pretoria CBD (-4%) and Durban CBD (2%) over 1999 with that of Cape Town's city centre which achieved a positive annualised return of 12.4% over the past five years.

Not surprisingly, Cape Town's city centre office vacancies remain the lowest of all the CBD's nationally at 8.13% for the second quarter, according to SAPOA.

Vacancies in the decentralised office nodes of Johannesburg, Durban and Cape Town suburbs have been declining since December 1999. Sandton is the notable exception where vacancies have started to rise and it may be that supply is temporarily outstripping demand; this may however only be reflecting lead and lags in the development cycle.

Weil comments that office rentals have remained firm. He expects a stronger domestic economy to stimulate further demand for office space and in certain cases new premier rental benchmarks are being realised. Demand for hi-tech space is growing on the back of the expansion in the service sectors, particularly the financial and IT sectors, and is expected to continue into 2001. This follows a worldwide trend as indicated by JHI's international marketing network, ONCOR International.

The market has remained generally cautious regarding new speculative commercial development and take-up rates have moved in line with available space.

JHI research highlights the view that rising disposable incomes, reduced relative household indebtedness and lower real interest rates are all factors which support consumer spending and will help boost activity in the retail property market over the next few months. However, JHI Research has a concern that savings levels are still dropping and are too low to sustain real and continued growth in retail sales.

The real value of retail plans passed in the second quarter of 2000 increased in all but one of four major South African cities, with Pretoria showing the largest increase in the value of building plans passed.

Table: Retail building plans passed over the past 3 quarters.

Retail Building Plans Passed - R millions    
 Cape TownDurbanWitsPretoriaTOTAL
May-0033,191 2,4415,5733,50044,705
Q2 percent change17.57%-67.64%57.13%182.66%30.78%

Discounting Durban's negative showing partially attributed to the distorting influence of Umhlanga's Gateway project, building plans passed represent positive sentiment for future retail investment in the major metros.

In the light of the general state of the economy, retail rentals have shown very little movement during 2000 and even the best retail centres are not seeing rental growth of more than 10%.

Once perceived as a threat, e-commerce offers alternative distribution and marketing channels that can serve to boost retail activity overall and stimulate demand within shopping centres. Investors will be keen to consolidate the 16.8% total return netted by retail property (21.9% for regional shopping centres) over the past five years and are advised to consider the strategic advantages for shopping centres within an e-commerce environment. Privacy Policy

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Through this division, JHI provides institutional and private clients with unequalled service to pro-actively manage property portfolios to maximise returns.

JHI's infrastructure is not readily matched, and access to internal resources ensures that Client's property portfolios are individually assessed and effectively managed. Ongoing investment in the most sophisticated computer systems ensures a flexibility that adapts to the unique nature of each property portfolio.

JHI's Property Management division offers all of the following services in any combination:

  • Rent collection
  • Property Administration
  • Leasing
  • Accounting services
  • Technical and Maintenance Management
  • Preventative Maintenance Management
  • Strategic Budgeting
  • Consulting
  • Portfolio Analysis
  • Performance Reporting

For any property management queries email Tommy Osborn, the National Director of Property Management at This email address is being protected from spambots. You need JavaScript enabled to view it.

The specialised nature of retail requires the dedication of an experienced team focussed on managing shopping facilities.

JHI's retail teams offer a service spanning:

  • Tenant mix analysis and procurement
  • Marketing and public relations
  • Promotions
  • Retail Trend Analysis
  • Turnover and trading density
  • Tenant liaisons and management

Further - the full property management service is available in the retail environment which includes

  • Rent collection
  • Property Administration
  • Leasing
  • Accounting services
  • Technical and Maintenance Management
  • Preventative Maintenance Management
  • Strategic Budgeting
  • Consulting
  • Portfolio Analysis
  • Performance Reporting

In fact, at JHI we believe that the management of property is about an entire service designed to give our clients meaningful information and the best possible returns.

For any retail management queries email Ivan Pachonick - the National Manager for Retail at This email address is being protected from spambots. You need JavaScript enabled to view it.

Enriched by a team of dynamic and experienced brokers, JHI's position as a top player in the market, provides a competitive advantage in tracking opportunities across Southern Africa.

Our broker network identifies opportunities to acquire or lease prime business premises for both property owners and tenants.

JHI negotiates the purchase, sale or lease of

  • Commercial Properties
  • Industrial Properties
  • Retail Properties
  • Investment Properties

Our clients include major financial and multinational institutions, syndications, private investors and end users.

For more information on JHI Broking please contact National Broking Management, Ms Lin Strauss-Minenza on This email address is being protected from spambots. You need JavaScript enabled to view it. or use our property search or brokers search to find properties and brokers in your area.

JHI believes in working closely with Clients to clearly understand their needs and to produce pro-active solutions on an ongoing basis.

In light of this, we offer long-term consultancy expertise to strategically facilitate our clients needs thereby adding value to our sales and leasing service. This wide ranging service includes the analysis of investment opportunities, feasibility studies and the provision of innovative property solutions.

Our consultancy service includes:

  • Commercial, Retail and Indstrial Leasing and Sales
  • Owner / Occupier Sales
  • Investment Sales
  • Lease Negotation
  • Site Selection
  • Development Project Co-ordination
  • Investment Analysis
  • Feasibility Studies
  • Research and Area Analysis
  • Lease Audits
  • Facilities Planning and Management

For any queries contact any one of the following team


The Investment Sales service offers a broad spectrum of property related advice. This includes the analysis of investment opportunities, feasibility studies and generally the provision of innovative property solutions.

We combine the integrated experience of a large broking base with valuations and property asset management experience to provide an excellent view on potential

For any queries e-mail Mr Andrew Edwards, National Director Valuations on This email address is being protected from spambots. You need JavaScript enabled to view it.


Our dedicated research team focuses on the investment, commercial, industrial and retail property market sectors.
Services include:
  • Long-term research with regular overviews of the South African property market and property cycle
  • Project specific research
  • Fast track research for information at short notice
  • Development research relating to current and projected property developments
  • Nodal fact sheets containing summarised information relating to specific market nodes
  • Trends in investment yields.

Please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. with any queries.

Working closely with our research division, or valuation team provides comprehensive and objective valuations to both local and international clients.

This service is vital to the decision making process relating to the management of property assets, property investments and development and business strategies.

An intimate knowledge of the retail, industrial and commercial investment markets is our competitive advantage. This knowledge and extensive experience ensures that values are related to prevailing market conditions with responsible insigt into future trends.

Our valuers provide reasoned, unbiased and confidential valuation reports for a variety of purposes including:

  • Open Market Value for the acquisition or disposal or real estate assets
  • Depreciated Replacement Cost
  • Open Market Rental Valuations
  • Valuations for Estate Duty and Mortage Finance Purposes
  • Continuation of existing use valuations
  • Estimated new replacement cost valuations for insurance purposes
  • Valuations for Annual Reports
  • Valuations for Expropriation
  • Arbitration and Expert Witness Services

Lease Audits

Increasingly tenants are aware of the significant savings that can be bargained through the efficient management of properties and property portfolios. Lease audits scrutinise existing leases from legal, economic and financial perspectives, with a view to maximising returns.

As the South African ecoomy continues to embrace a new era in which transparency and good corporate governance are of prime importance, JHI's Legal Services Department's response has been to develop a lease audit and due diligence service which assesses and compares the contractual documentation involved in a property portfolio (such as lease agreements and service provider agreements) with the actual rental and operating costs paid or received throughout a property portfolio.


Our professional valuation team is in a position to provide expert witness for arbitrations, court cases and other legal requirements.

International Property Services

As a leading real estate services organisation, JHI Real Estate prides itself on having a truly global partner.

Oncor International is an organisation of top-ranked, independent business realty companies dedicated to servicing Clients with property needs in multiple locations worldwide. Oncor's marketing network includes over 180 full-scale offices across the globe.

As the sole African member of Oncor, JHI Real Estate is represented in 200 international markets and in 45 countries throughout the Pacific Rim, United Kingdom, Europe, North and South America and the African continent.

JHI's International division interacts with its Oncor partners and its International Development Research Council (IDRC) associates to offer a comprehensive range of property services throughout the world and have assisted local and overseas clients with their international needs.

Through this unique network we can offer you a range of services across the world including:

  • Leasing and sales
  • Corporate Facility Management
  • Investment Services
  • Development Consulting
  • Tenant Representation
  • Asset and Property Management
  • Financial services (legal and auditing)
  • Corporate Services
  • Project Development Management

JHI's location in the heart of commercial Africa enables us to extend our expertise and knowledge to the ever growing African markets outside its borders.

African Connections

JHI's International division concentrates on sourcing, researching, developing and marketing suitable projects across the continent.

The service uniquely designed for the African continent includes:

  • Property Management
  • Site selection and procurement
  • Project Development Management
  • Project Management
  • Tenant mix co-ordination
  • Market Research
  • Valuations and Consulting
  • Leasing and Sales
  • Marketing and Promotion
  • Financial Packaging

For any queries e-mail the International Director for JHI, Wayne Wright on This email address is being protected from spambots. You need JavaScript enabled to view it.

With expanding local and African markets, JHI offers a comprehensice range of property development services.

Our Development Management division identifies viable project opportunities on an ongoing basis on behalf of investors as well as end-users.

JHI prides itself on deliverying turnkey development and a Guaranteed Maximum Price (GMP). The service extends from the procurement of property, the design and construction of the building through to the installation of specialist equipment, commissioning and handover.

With regard to the management of construction projects, JHI provides an on-site management service including pre-construction and post-construction services as well as programme management and consultancy.

Our Development Management services include:

  • Project Identification
  • Site selection
  • Project planning
    • Technical
    • Legal
    • Financial
    • Programming
  • Development planning
    • Methodology
    • Resourcing
    • Procurement
    • Programming
  • Financial Structuring
  • Project Management
  • Turnkey Developments
  • Tenant Co-ordination

For more information contact Mr Trevor Glass, National Director: Development Management on This email address is being protected from spambots. You need JavaScript enabled to view it.

Facilities Management

JHI offers clients significantly more than routine office design and layout, the challenge is to use office space efficiently in order to maximise the effectiveness of available space.

Our Facilities Management division enables an organisation to divert itself from its non-core activities allowing any organisation to concentrate its efforts on the business it knows best.

Facilities Management offers:
  • Office Space Needs Analysis and Planning
  • Building Services Management (Cleaning, Air Conditioning, Maintenance)
  • Support Services Management (Reception, Switchboard)
  • Demographic Studies
  • Tender Adjudication

For any queries e-mail Mr Ross Young on This email address is being protected from spambots. You need JavaScript enabled to view it.

We beleive that the hallmark of our asset management service, is pro-activity. Strategies are investigated, defined and implemented with a view to optimise the performance of the investment over the long term. A systematic approach to portfolio planning and support of sophisticated investment research provide the foundation of good asset management.

Our property asset management service concentrates on the analysis of our clients' existing and anticipated property portfolio in order to maximise the income earning potential and future performance of the underlying asset.

To this end, our highly experienced team will continuously seek opportunities to add value to static portfolios and identify areas of potential growth. Through interface with property portfolio managers and investment brokers alike, strategic planning is undertaken, concentrating on the specifics of individual properties.

For any queries e-mail Mr Dave Becket on This email address is being protected from spambots. You need JavaScript enabled to view it.

JHI Real Esate Limited is a wholly owned subsidiary of the JH Isaacs Group Holdings Limited. As a focussed company, JHI is able to meet the needs of a sophisticated client base and operates through five interactive operational business units:

  • Property Services
  • Professional Services
  • Development Management
  • Facilities Management
  • Property Asset Management
  • International Property Services

As a leader in the fields, JHI Real Estate provides key services dedicated to servicing commercial, retail and industrial property needs throughout Southern Africa.

We have a simple service philosophy. Your needs - our solutions. This focus enables us to deliver the best service solution you can expect. And if we don't have the answer to hand locally, we will extend our search throughout our global associates through Oncor International.

As part of the JHI Group, JHI Real Estate Limited is committed to maintaining its place at the forefront of developments, providing a multiplicity of property related services. These services bear the unmistakable hallmark of quality, integrity and professionalism, the fruits of experience and high ethical standards.

Established in 1902 and now a leading property services group in South Africa, JHI has major regional offices in Johannesburg, Cape Town and Durban, and branches in Pretoria, Pietermaritzburg and Bellville. More recently permanent offices have been established in Mozambique and Tanzania.

JHI represents ONCOR International in Africa. JHI's ONCOR International membership provides representation in more than 45 countries worldwide, including Europe, the USA and Canada, the Far East and Australia.

Through the endeavours and foresight of one intrepid young man, James Henry Isaacs, that this property giant, today known as JHI Real Estate, had its modest beginnings.

James Henry Isaacs arrived in Durban from England in 1878 as a lad of nineteen years, with little other than a burning ambition to succeed. For some time he traded as a general dealer in Pietermaritzburb and then returned to Durban where he conducted business in premises adjoining the old Central Hotel in West Street. Following the post Boer War depression, he decided to expand his trading activities and as a result in 1902 a sign went up reading



Surely, James Henry Issacs could never in his wildest dreams have foreseen the dimensions to which this small enterprise would expand. Two years later, J H Isaacs opening in Johannesburg, in Loveday Street, initially together with an old friend, L.K.Jacobs, and subsequently solely as J H Isaacs. In 1911 James Henry Isaacs returned to Natal and his son Henry took charge of the Johannesburg office. A second son, Edgar Baden Isaacs had meanwhile been born in 1900 and it was Edgar who assisted his father in Durban and who eventually took over from him on his death in 1921.

For a time the firm continued to operated in both provinces, but in 1931 the partnership between Henry and Edgar was dissolved and each assumed control of the Transvaal and Natal companies respectively.

The two organisations grew and prospered and in 1935, as a result of expansion, a new partnership was formed in Durban between Edgar Isaacs and Israel Geshen under the title of J H Isaacs, Geshen and Company. This partnership, of two of the pillars of Durban's business community, was highly successful and the company was involved in much of the development of Durban, particularly in the beach and central areas.

At the same time the Johannesburg operation grew steadily under the direction of Henry Isaacs, a man unversally respected for his impeccalbe business qualities and by the outbreak of the second world wat in 1939 J H Isaacs & Company had become a household word in Johannesburg property circles. Henry Isaacs had by this time been joined by his son, Wilfred, who served in the South African Air Force during the wat, where he formed a close friendship with Harry Gottlieb who was to become the life president of JHI.

As a result of the advent of peace, Harry Gottlieb joined Wilfred at J H Isaacs where he soon built up a legendary reputation as a property salesman. In 1947 Gottlieb become a director of J H Isaacs and in 1953, following the death of Henry Isaacs, Wilf Isaacs and Harry Gottlieb took control of J H Isaacs & Co. With the passage of time Wilfred Isaacs left what had hitherto been a family business and the company was restructed with Errol Friedman becoming Gottlieb's personal assistant.

Over the next three decades the remarkable skills and drive of Harry Gottlieb propelled J H Isaacs into the forefront of the Johannesburg property scene by bringing about significant changes to the city skyline through his flair and vision in assembling city stands into macro projects, notably the Carlton Centre, and developing prestige blocks such as the Edura Building  for Anglo American and the IBM and NBS buildings among others. Harry's property versatility was also illustrated by his presiding over the sale of numerous well known suburbs including Parkmore, Sydenham East, parts of the Free State Goldfields and the Robberg side of Plettenburg bay.

In 1976 Les Weil, present chairman of the JHI Group, joined the company as financial director. Using his CA and MBA skills he piloted the new concept of portfolio assemble in the formation of property unit funds with the formation of the CentreCity Property Fund (1980) and the Capital Property Fund (1984).

Harry Gottlieb, acting as life president, Errol Friedman and Les Weil as joint managing directors acted as a strong force in moving the company forward during the eighties.

Eskel Jawitz Real Estate (Pty) Limited joined forces with then JHI Transvaals residential division in 1984. More than 6 branches operated including Parkview, Sandton, Lyndhurst, Rosettenville, Alberton and Randburg under the direction of Eskel Jawitz.

Back in Durban, J H Isaacs, Geshen & Company's (IG) progress accelerated and in 1955 the comapny had erected its own headquarters building at 375 Smith Street where it moved from Holts Building which stood at the corner of Smith and Field Streets and from whence the comapny had operated for forty years. At the same time a network of residential brances was being steadily developed and IG branches were established at Westville, Durban North, Umhlanga Rocks and Pinetown. These were later extended to include Berea, Beach, Bluff, Kloof, Hillcrest and a regional office at Pietermaritzburg.

In 1969 IG had decided to expand its operations into the field of finance and large development projects. With this end in view, Gerald Hackner and Alan Benn, who had retired as principals from a large firm of accountants, were offered and acquired equity in the company. The Board was reconstructed to include them, Trevor Warman, a past mayor of Durban, who joined the company later in the same year. The addition of three such experienced business men mad an immediated impact and resulted in the introduction of fresh and innovative ideas leading to the company's greater participation in property development.

M I Geshen died in 1979 and three years later it was considered desirable for the future progress and stability of the company to ensure ongoing management with a compatible and conservative business partner. In order to attain these objectives a sale was concluded in 1982 of equity in J H Isaacs, Geshen & Co. to Grovewalk Holdings Limited.

1985 was a momentous and historical year from JHI , because it witnessed the successful culmination of many months of effort and negotiation to bring about the logical merger of J H Isaacs in Johannesburg and J H Isaacs, Geshen in Durban - two of South Africa's largest and most prestigious real estate companies, thereby creating a single property force with combined assets under management of nearly R 4 billion and an opportunity to provide a diversity of specialised property services nationwide.

These services at the time included management of three property unit funds - CentreCity, Capital and Grove, with a joint portfolio of approximately R 900 million; partnership with Volkskas and United Building Society in the multi million Combined Participation Bond Managers, insurance broking and computer burea (Nicor) operations in addition to the J H Isaacs core businesses of property sales, development, auctions, rent collection and valuations.

In the same year J H Isaacs opended a corporate office in Cape Town providing comprehensive commercial and industrial services from J H Isaacs House that was established on Heerengracht with a branch office at Belville.

In 1990 Grovewalk disposed of its shareholding in JHI to United Holdings Limited (now ABSA).

Sadly Harry Gottlieb died in 1991 and in the previous year Basil Levene retired after 50 years of service with the company and having served as the Chairman of JHI Natal.

In 1992 the total number of residential sales offices equalled 26 and JHI was operating from corporate offices in Johannesburg, Cape Town and Durban with branch offices in Durban, Pietermaritzburg, Pinetown and Belville.

In November 1996, JHI Group Holdings concluded a deal with Vuna Industrial Holdings (the industrial arm of Thebe Investments) and its subsidiary, Thebe Properties (Pty) Limited. As a result of this deal, Vuna purchased shares in JHI which had been previously held by ABSA and JHI bought Thebe Properties (Pty) Limited. Through this transaction, Vuna became the largest single shareholder in JHI with 34% of the shareholding.

JHI has always been a leader in its field - combining a conservative approach with progress and innovation. Strong traditions of ethical and first class service to its clients have been maintained through nearly a 100 years of providing property solutions.

Client profile

Clients include major local and international institutions, multi-national corporations, professional practices and individuals. Major development projects, co-ordinated by JHI, include the Johannesburg Stock Exchange building and the head office buildings of IBM, Metal Box, Arthur Andersen and Alexander Forbes Financial Services.

JHI has played a major role in the R1,4 billion Melrose Arch Project for Mines Pension Fund in the northern suburbs of Johannesburg. This ambitious project will include office, retail, medical and hotel facilities.

Properties under management have a market value of R6,7 billion, are 3,5 million m² in size and accommodate 6500 tenants.

The Group's Head Office is situated in the prestigious node of Rosebank in Johannesburg, and includes a host of quality occupiers, including Sasol Ltd, Bank of Taiwan, and Olympic Airways.In 1990, the JHI group executive took a decision to implement policies aimed at addressing the historical imbalances within South Africa and this is currently being realised throughout JHI.

The subsequent launch of the JHI CRAFT (Creating Real Advancement For Tomorrow) programme within JHI created the mechanism for the ongoing employment and training of programme participants drawn from the historically disadvantaged communities within South Africa.

Participants in this programme receive in-house training within the different operating divisions of JHI while rotating at six-monthly intervals.

They also participate in the in-house technical skills programmes. The content of these four programmes range from material at an introductory level to instruction at a tertiary education level. (JHI is currently applying for Services SETA accreditation for these programmes.)

A significant contribution towards black empowerment was JHI's support of Thebe Investments and Thebe Properties as these companies sought to become prominent players in the South African property market.

In November 1996, JHI Group Holdings concluded a deal with Vuna Industrial Holdings (the industrial arm of Thebe Investments) and its subsidiary, Thebe Properties (Pty) Limited. As a result of this deal, Vuna purchased shares in JHI which had been previously held by ABSA and JHI bought Thebe Properties (Pty) Limited. Through this transaction, Vuna became the largest single shareholder in JHI with 34% of the shareholding.
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Our policy with regard to the outsourcing of contracts and services is, while remaining independent so as not to prejudice our clients through the biased appointment of a select group of contractors, to form business relationships with contractors, service providers, professionals and firms from previously marginalised communities.

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The Provincial Market Context

Gauteng drives the South African economy, contributing some 38% of the national Gross Domestic Product (GDP). The province’s economic activity is mainly centred on the greater Johannesburg area, which includes the eastern, western, northern and southern metropolitan local council regions. The second largest contributor to economic activity is the greater East Rand, spanning from Kempton Park in the north to Heidelberg in the South.

Looking at a breakdown of which economic activities account for this activity throughout the province, the Development Bank of Southern Africa reports that manufacturing, followed by services, commerce and finance are the key sectors. The importance of mining’s contribution to economic growth has declined significantly since 1980. Interestingly, while construction represented only 3,3% of the provincial Gross Geographic Product (GGP), it accounted for 39% of the total construction industry country-wide.

Looking at property development activity in Johannesburg and Pretoria in more detail, the following graphs provide an indication of new projects listed, per sector and per node since the third quarter of 1998.

The sectoral breakdown shows the number of projects listed in the greater Johannesburg region (including the East and West Rands) during the time period under review. Offices show a clear predominance and account for over half of new projects, closely followed by retail. Industrial lags at 12,62% of total number of projects. Hotels account for less than 10% of new activity.

The spread of development activity remains very wide, although Sandton, the East Rand and the northern office/retail suburbs of Johannesburg showing comparatively high development levels.

Turning to new projects in greater Pretoria, it seems that offices remain in top position at 56,10% of new developments in the city. Retail accounts for the second-largest slice of projects, followed by industrial at about 17%. More than half of the industrial projects in Pretoria are located in Centurion.

In terms of the geographic spread of property activity, Pretoria is considerably less dispersed than Johannesburg with interest targeted in two main directions: Centurion, which is developing into a mixed use node, and the office/retail nodes of the eastern suburbs.

Over the past two to three years, several trends have emerged which have arguably altered the South African property market’s equilibrium. In Gauteng, these same factors have proved to be an important influence on the market.

Ownership has changed hands to some extent from institutions to smaller or private investors. At the same time, high real interest rates have focused the industry’s attention on the availability of finance and gearing. This new focus precipitated the entry of merchant banks as financiers into the property investment market. Above all, in recent months, the market has experienced high levels of interest rate sensitivity.

The market is highly differentiated and trading conditions are generally tight across all sectors of the market. Property managers are reporting increased difficulties in rental collection, particularly because tenants often feel that landlords would prefer to show lenience than increase vacancies in their properties. This ties in with reports of higher numbers of liquidations and high demand for credit from the business sector.

Due to this market environment, more active lease negotiations have become the norm, with landlords prepared to offer concessions in exchange for longer leases of five years, or more. Tenants, on the other hand, are looking for shorter lease terms of between one and three years. This is because there is a tendency to avoid long-term commitments on the part of business, given the current economic situation. This is particularly true in nodes like city centres, which are seen to have an unclear future.

Lease escalations are running at between 10% and 12%, with only the premier nodes achieving the top end of this range. In some cases, landlords accept lower lease escalations as a trade-off for reducing vacancy levels in their buildings. Similarly to operating cost escalations, the inflation rate does create a market perception of what acceptable lease escalations are, although this is not necessarily a relevant benchmark.

Operating costs are increasingly under scrutiny, although the Sandton rates debate has been resolved and the universalisation of rates in Johannesburg has been factored into the market. Currently, typical operating cost escalations in Gauteng are between 12% and 15%, with 13% being an average. There is a perception that operating cost escalations are linked to the inflation rate, which is running at about 6%, ands this could result in resistance to high operating costs escalations. However, JHI Research has found that the basket of goods used to calculate the inflation rate is not necessarily the most relevant for the property industry - and in fact, the labour cost index my have a more important impact.An increase in labour costs would directly affect operating costs by increasing the price of, for example, security and cleaning services.

The mothballing of buildings - a practice which has occurred in both the Johannesburg and the Pretoria city centres - also has implications for property owners from an operating costs perspective. Effectively, operating costs like rates and taxes are still payable, even if there are no tenants in the building. Thus, even in buildings with high vacancies, the investor carries the burden of additional costs.

To provide a broad-brush overview of lease escalations and operating cost escalations across South Africa’s major cities, consider the following table:

The Office Sector

Perhaps the major news currently in the market about the Johannesburg CBD is the sale of the Carlton Centre, which is tipped to become a major corporate head office. While final details are still to be released to the marketplace, it is expected that the new tenant will be enjoying the benefits of an attractive rental differential.

Aside from that good news, CBD office brokers report that the node is seeing little new activity and in fact some tenants are continuing the northwards trend. It is understood that certain non-governmental organisations are re-locating to Braamfontein (which is becoming an educational and NGO node) from the city centre, perhaps because of the on-going perception of crime. Top CBD gross office rentals achieved for A-grade space are approximately R32/m2.

Having said that, there are numerous initiatives underway and much hope has been pinned on the successful implementation of the Igoli 2002 plan of action, which lays out a two-year action plan for getting the City of Gold back on track. Other projects include:

- the Jack Mincer taxi rank and taxi parking project;

- an inner city spatial development initiative in Newtown, aimed at promoting development;

- a social housing project in Albert Street;

- the R35m upgrade of inner city housing;

- the All Africa Games is expected to have positive spin-offs for the inner city; and

- ongoing crime initiatives, like the Car Guards Project.

Despite this, capitalisation rates continue to weaken and the gap between CBD and decentralised rentals continues to widen.

In both the northern suburbs and Sandton, an under-supply of space may be beginning to emerge. While developers have adopted a cautionary view to new projects in the past 18 months, thanks to high interest rates and a general economic slowdown, demand has continued although arguably at a slower pace. The result is that this same level of demand is increasingly difficult to accommodate.

In the northern suburbs of Johannesburg, the nodes are generally displaying a stable market. In many of the nodes, there is little land available for new development so that even though existing space is new and vacancy levels are low, the potential for future development is limited. Another general comment regarding the northern suburbs is that they tend to lack the proximity to retail and social amenities which is a drawcard in Sandton. There are of course exceptions to this, the most notable of which is Rosebank. An additional factor is that office space in many of the upmarket northern suburbs nodes can be had for lower rentals than comparable space in Sandton.

Parktown’s office space is achieving gross rentals of between R32/m2 and R45/m2, but the node has little room for new development. The node’s good access and central location between the CBD and northern commercial nodes is one advantage, as is the fact that Parktown is still served by municipal bus routes. The greenbelt environment of the node is an added attraction. On the flip-side, Parktown has little in the way of restaurants or retail facilities, although it is the location of the Sunnyside Crowne Plaza hotel which serves the area. The Isle of Houghton is achieving around R51/m2 gross.

Killarney is a small node that has received a strong boost from the recent expansion and renovation of Killarney Mall. Demand comes from corporate and professional tenants and the nodal market is stable, with high occupancy levels but little new leasing activity. New development will have to start re-zoning residential property, since there is no commercial land available for development.

Close by, the office strip in Houghton between the M1 motorway and West/Central Streets has attracted a variety of tenants from the travel and finance sectors, as well as professional and small to medium-sized corporate offices. Again, Houghton has little to offer in the way of retail or entertainment amenities, but it has good access via the M1 motorway. Gross rentals for new, premier space are between R58/m2 and R64/m2. The construction of the new Clarins head office on Scott Street in Waverley may indicate the potential for Houghton to continue to grow northwards along the M1 to Corlett Drive.

The Hyde Park/Dunkeld node is also displaying low vacancies and remains popular. Gross rentals are in the region of R50/m2 and R60/m2. The node is home to companies like Arthur Andersen and Ericsson.

Rosebank is a well-established commercial node and is one of the few in the northern suburbs which offers a wide array of retail and other facilities, including clinics, hotels and restaurants. Many of these amenities are within walking distance. Although vacancies are low, rentals have remained fairly stable for the past year: the top-end gross rental for prime office space is around the R70/m2 mark, while gross rentals for older space with limited parking are between R45/m2 and R60/m2. The major new office development in the node is for TA Bank on the corner of Seventh Avenue and Jan Smuts Avenue, and the bank is expected to tenant a large proportion of this new space.

Another trend in this area is that of home offices, or the conversion of old homes to offices, along major arterial routes. Oxford Road, Jan Smuts Avenue and Glenhove Road are all seeing this type of commercial activity.

It is worth pointing out that Rosebank has become the first commercial node outside the Johannesburg CBD to establish a management district (and eventually a City Improvement District). The importance of this move is that Rosebank’s management district is in a position to prevent urban decay, as opposed to the CBD’s CIDs which have a reactive role, and the RBMD’s success in achieving the aims of urban rejuvenation will be of interest to commercial nodes around the country.

The first phase of the mixed-use Melrose Arch project is expected to become available at the end of 2000. Brokers report that demand is already being expressed from potential tenants, and the development’s mixture of offices, hotel, conference facilities and retail centres could enjoy high levels of demand.

Illovo is a well-serviced node which is popular with a range of different businesses, although traffic congestion is a major problem, especially where Oxford Road narrows into Rivonia Road. This situation has been worsened by the temporary closure of Fricker and Melvill Roads. The new concept Illovo Boulevard to the west of Oxford is seeing some speculative development which is expected to achieve rentals of between R65/m2 and R70/m2.

The Sandton node continues to enjoy high levels of demand, despite the general market slowdown, and brokers are beginning to report an under-supply of premier office space - particularly in the Sandton CBD. For example, the 20,000m2 final phase of Merchant Place was let without the assistance of outside brokers which bears testament to the level of demand in the market.

The problem lies with demand for large premises. Brokers report that enquiries for space of between 2,000m2 and 10,000m2 are coming in, but cannot be accommodated easily by the existing supply of premises. Sandton CBD is expected to see some 70,000m2 of new office space coming on-stream in late 2000, it seems that new space has already been fully let and thus is unlikely to alleviate the increasing under-supply of offices in the node.

Examples of new developments that are taking place around the central Sandton region include the 14,000m2 Compaq project on the corner of West and Maud Streets and a new 9,000m2 office premises for Discovery Health on the corner of Alice Lane and West Street.

Nedbank’s Cherrycroft Estate will bring an additional 60,000m2 space onto Rivonia Road and will be fully owner-occupied. The re-location of the Johannesburg Stock Exchange to Maud Street will add a further 14,000m2 of offices to the node, while the move itself re-affirms Sandton’s undisputed status as Gauteng’s financial district.

Rental growth is benefiting from the rising demand for offices in the Sandton CBD. However, brokers caution that while tenants are prepared to pay high rentals, they are uncompromising about the quality of space which they expect to lease. Top-end gross rentals remain around the R80/m2 mark.

One trend that does seem to be emerging is that of sub-leasing. In the case of expanding tenants moving to larger premises in other nodes, the potential does exist to negotiate sub-leases at favourable rentals. Certainly, throughout the northern suburbs and Sandton, leasing seems to be the preferred route in the prevailing market and sales of properties are generally slow.

The concern which new development raises is that of increased traffic flows into the Sandton CBD - estimated to be in the region of some 6,000 additional vehicles - and this could exacerbate the problem of congestion from which the node is already suffering. There are reports of tenants who will not consider moving to central Sandton purely for this reason.

Debate surrounding the much-vaunted increase in Sandton rates in 1995, which caused a significant outcry during 1996 and 1997, has been resolved and the issue of rates and taxes in the node no longer appears to be one of general concern.

In nodes such as Wierda Valley, the inability of expanding businesses to find additional space has also become a constraint and some tenants are seeking alternative accommodation in other nodes. Companies like Vodacom, ABB and ABN Amro are moving out of Wierda Valley, while there are tenants along Katherine Street, particularly at the northern end of the road, are looking for space closer to the CBD proper.

The problem of finding additional space in central Sandton has prompted some companies to move farther afield. Sunninghill is one northern Sandton node that has benefited from this trend in recent years, although new development is being severely constrained by inadequate road infrastructure and reportedly significant traffic congestion problems.

Lower rentals than in Sandton CBD are one of Sunninghill’s attractions, but rental growth has reportedly remained fairly static as a direct result of these traffic infrastructure constraints. The node continues to achieve gross rentals of between R45/m2 and R50/m2 for prime space but brokers expect increases to be limited to average rental escalations until the problem is addressed.

Fourways has seen high levels of development in the past 12 months and the new Fourways Crossing retail centre opened its doors in 1998. Once again, there are concerns regarding the capacity of existing infrastructure in the node despite plans for certain roads to be widened.

The high demand for premier office space in nodes outside the Sandton CBD is indicated by the fact that speculative developments are taking place, despite the overall market stasis evident in much of the country. African Life Properties are developing an office project on the golf course in Woodmead. Woodmead Estate was completed in 1998, also on a speculative basis. Rentals for offices in this development reportedly rose from R55/m2 to R60/m2 during the course of the year and it is understood that the project is fully let.

The emergence of successful speculative development may be the first sign that the prime office market in Johannesburg is beginning to see more activity, on the back of the under-supply that resulted from general market slowdown and, arguably, high interest rates over the past few years.

The office market in Midrand continues to display low vacancies in existing premises and is achieving rentals of around R40/m2 - R48/m2, which is relatively cheaper than the office nodes to the south. The majority of office space in the node is found to the west of the M1 motorway, in developments like Waterfall Park, which has emerged as a mixed-use node, with its own restaurants, convenience retail and banking facilities for tenants. However, Midrand is perceived to be more of a light industrial, warehousing and distribution node and it is expected that new development activity will focus more on industrial projects with an office component, than 'pure' office projects.

Before turning to the office market in Pretoria, it is interesting to consider the following trend in rental differentials. Sandton’s A-grade office rentals are almost twice those of the Johannesburg CBD, while Pretoria’s Brooklyn/Waterkloof node is characterised by rentals that are about 1,4 times that in the Pretoria CBD. Either this could indicate that CBD demand in Pretoria remains relatively strong, or else it indicates that the Pretoria market is following in Johannesburg’s footsteps.

Brokers in Pretoria report that the approach being adopted by developers and investors is one of 'no risk' and 'no speculative development', which is very much the same situation as in the majority of Johannesburg’s office nodes. At the same time, there is an overall under-supply in the market, with available space being scattered in small pockets throughout the different office nodes. Landlords continue to look for leases of five years or more, as part of the prevailing market’s need for certainty.

There is some indication that the Pretoria CBD market is stable, especially where landlords are prepared to negotiate attractive tenant installation allowances and other incentives. Perhaps another reason is that the CBD’s office rentals are competitive and good quality space can be let for about R35/m2.

Brokers report that there is a significant shortage of space in Brooklyn and there are expectations that the local council will be implementing a stricter re-zoning policy in the node, which may push up rentals in the coming year. It is furthermore anticipated that land will become increasingly more difficult to re-zone, which may again limit supply and tighten the market. Top-end gross asking rentals in Brooklyn are approximately R55/m2.

Hatfield has seen some movement of tenants outwards to Brooklyn and Menlyn - for many of the same reasons that businesses are decentralising from the Pretoria CBD - perceptions of crime and grime and congestion problems. Medium-sized office developments of between 1,500m2 and 2,000m2 are still expected to take place in the node, but generally only where space is pre-let. Home offices continue to be a major feature of the office market in Hatfield.

As a general comment on the Eastern Suburbs market, enquiries for space are ever harder to accommodate. One of the reasons for this is that the development market is operating on a strict, demand-led, tenant-specific basis and new space is let before the project is completed.

This particularly impacts smaller tenants looking for space of between 100m2 and 150m2, especially when they are unable to afford high rentals.

While retail activity is starting to emerge in the north and north-eastern nodes like Montana, the office market is mainly centred around the CBD and the eastern suburbs with little development or demand in the west or north.


The Retail Sector

As a national context, it is important to note that private consumption dropped from 2% in 1997 to 1,1% in 1998 and is not expected to grow more than 0,5% to 1% in 1999. The split of private consumption expenditure in 1998 indicates that demand for durable goods, such as appliances, dropped by almost 5,5%. Semi-durables such as clothing and footwear saw half the growth of 1997, at 1,5%. Non-durable demand, such as foodstuffs, dropped from 2,3% in 1997 to 1,1% in 1998. Importantly, demand for services rose to 3,2% in 1998 - the only sector to show a positive growth.

In current terms, retail sales in the Gauteng province for 1998 amounted to some R53 billion, with Johannesburg and Pretoria each contributing R18 billion and R12billion, respectively. January 1999 saw retail sales in Johannesburg amounting to R1,4 billion and in Pretoria, R917 million. The following graph provides a provincial breakdown which shows the relative importance of Gauteng as a retail province:

Latest Statistics SA data show that new retail buildings completed in Gauteng during 1997 amounted to 225,839m2. The node which saw the greatest area of new retail space coming on-stream during that year was, in fact, Pretoria (87,620m2) followed by Johannesburg (43,255m2). Randburg saw some 15,315m2 of retail property completed in 1997.

In a bid to gain insight into the real retail market in the Johannesburg CBD, JHI recently undertook a consumer and a retailer survey, aimed at probing attitudes and opinions about this node, especially in the light of city-wide concern that the CBD is sinking into urban decay.

The consumer survey found that 65% of the shoppers interviewed reported a gross monthly income of less than R3,999, while 52% indicated their race group as black. This underpins the move towards goods aimed at lower-income and black shoppers, and a growing preference for cash-based retail businesses. The node listed as the most popular shopping destination for consumers is that bounded by Sauer, Jeppe, Smal and Commissioner: an area which includes the Eloff Street shopping node, the Smal Street Mall, the recently pedestrianised Kerk Street Mall. From a transport perspective, the node is in close proximity to Park Station, the Noord Street taxi rank and the Eloff Street/Van der Bijl Square bus terminus.

The retailer survey found that while crime was a primary concern for many shop-owners, some 42% of those interviewed are optimistic about their future in the city centre - and several of these retailers indicated their intention to expand within the central city, rather than re-locate. Key advantages offered by the CBD included proximity to transport facilities, and the ongoing benefit of City Improvement Districts. The same node as discussed above shows the highest level of retailer satisfaction, with 62% of retailers surveyed wanting to stay in the area - not least because of the presence of the Retail Improvement District.

Central business districts throughout the province are adjusting to changing consumer markets - and the resulting change in the demand for goods and services. Retailers which are typically emerging in city and town centres include cash lenders, furniture and white goods outlets targeting the lower-income markets and discount fashion chains.

There are a number of issues which retail brokers raise with regards to the retail market in Gauteng.

For the past few years, and particularly as the macro-economy has slowed, developers and investors have tended to show a preference for convenience centres. There are concerns that the market in general is becoming saturated with this type of development and that catchment areas are becoming smaller as a result of the number of new centres being opened. Fast food outlets and drive-throughs are included in this concern and the potential for compromising turnover potential - even for other outlets in the same chain - should be considered.

Another issue is that when large food chains are brought into these centres as an anchor, they can negatively affect the smaller, specialty line stores - such as florists, butchers or pharmacies. If legislation is amended to allow supermarkets to sell liquor, this could also affect bottle stores.

The perception is, that as a result of the abovementioned crowding out effect, vacancies are starting to grow in the convenience centre market. The turnover of tenants has also reportedly increased in certain centres.

On the East Rand, the node surrounding the East Rand Mall and along North Rand Road has evolved into a retail node with a wide variety of options: from the value centre, to retail warehouses, to the mall itself. It is understood that many of the outlets in this node are achieving excellent turnovers, despite the general slowdown in consumer spending. Part of the reason for this may be the node’s proximity to residential suburbs, its wide choice of destinations and its accessibility.

East Rand gross rentals for small premises in regional centres are around the R185/m2 mark, while in convenience centres, depending on the node and the tenant, gross rentals can start from around R30/m2.

The newly-opened Lakeside Mall in Benoni appears to be quite successful and is the first regional mall to be developed in the node. The mall may also provide a focal point for additional commercial development to occur close by.

On the West Rand, the focus of development attention continues to be the Ontdekkers Road strip and there is talk of additional retail development to the west of Westgate Shopping Centre, which has traditionally marked the farthest point of Roodepoort’s retail sector. Along this arterial, gross retail rentals start at around R55/m2 in convenience centres and tenants tend to be owner-operated businesses - like small pharmacies, home industry shops or dry cleaners. The question is whether or not this node is now developed as far as demand allows.

Additional commercial development towards Krugersdorp is expected to occur on a strongly demand-led basis, with the emergence of home offices sparking demand for the provision of retail and other services.

In the Florida CBD, demand for smaller space exists but much of the available supply is of large premises and brokers report that landlords will have to downscale rental expectations if they want to attract tenants. A major problem is reportedly lack of parking space. Home offices are in evidence along Goldman Street, with tenants arguing that security and parking facilities being key attractions of locating to this type of premises.

Not unexpectedly, the primary constraint to new retail development appears to be the availability of finance. At the same time, perhaps because of concerns about over-supply, there seems to be a move towards a tenant mix that offers something between convenience and regional centres: a strong focus on convenience anchors, combined with a select group of destination shops. The benefit of this type of centre is that it avoids the congestion of a larger shopping centre, but offers a similar - if less extensive - range of outlets, which goes beyond pure convenience.

The regional malls like Sandton City, Cresta and Eastgate continue to do well and suffer few vacancies, not least because many of these malls are recognised as a destination in their own right.

Some property experts are expressing the view that the north, west and east retail nodes are saturated for the time being and that the south-western nodes are likely to receive some development attention. The performance of existing facilities include The Glen, Comaro Crossing and Southgate Mall combined with the growth of middle-income residential suburbs in the region will be key factors in future retail development decisions.

There is also a view emerging that while there are deals to be done, the focus will be away from the traditional retail nodes. Potential in outlying areas like Rustenburg, Witbank and other towns may prove to be worthwhile, especially if signs of retail saturation in central Gauteng prompt retailers to look farther afield. Some retailers are eyeing the African markets beyond South Africa’s boundaries with interest, and JHI Research has been involved with projects in West, East and Central Africa during the past year.

Finally, there is a preference for 'village', streetfront shopping which is becoming evident and it is closely linked with a cafe society type of entertainment component. The two major examples are to be found in the northern suburbs of Johannesburg: Parkhurst, which has developed as a vibrant, restaurant and antiques node; and Melville, which is known for its galleries and decor shops, as much as for its sometimes off-beat restaurants and cafes.

In Pretoria CBD, a retail trend is emerging which is similar to that in the Johannesburg city centre. There seems to be a perception amongst tenants that crime levels are stabilizing. Shopping centres such as the Tram Shed and Sammy Marks Square are enjoying high occupancy levels and there is even the possibility of a hotel being developed at the latter centre. Smaller line stores in CBD shopping centres are achieving gross rentals in the region of R150/m2, while similar shops in prime decentralised malls are likely to achieve closer to R250/m2.

Decentralised malls in the eastern nodes continue to perform well, with key examples being Brooklyn Square and Brooklyn Shopping Centre. There is still a tendency towards convenience retail, but judging by the situation in Johannesburg this trend may begin to slow in the coming year. Menlyn Park Shopping Centre has been refurbished and expanded in recent months, which is in line with country-wide trends.

The north and north eastern suburbs are also enjoying some retail activity, with the Kolonnade Shopping Centre in Montana being one example. Interestingly, this centre also offers shoppers a strong entertainment component, with an ice rink and games arcades included as part of the tenant mix. Continuing with the entertainment theme is the Zambezi Waterfront which is located close to the Kolonnade and is additional evidence of the growing demand for entertainment facilities as part of retail projects.

In Centurion, there are plans for retail development in the Wierda Park area, particularly as the surrounding residential suburbs continue to expand. Generally, the view is that it is a landlord’s market when it comes to prime, high-quality retail space, whereas in the market for lower-grade retail space, tenants are ruling the day.

However, the west appears to be very quiet with little activity in evidence. This region should however benefit from the proposed Mabopane-Centurion Development Corridor, which will enhance access and infrastructure along the western side of the greater Pretoria region.

The Industrial Sector

It is worth pointing out that from a macroeconomic perspective, the industrial property market may be negatively affected by the declining level of exports. From 11% real growth in 1996, Nedcor reports that exports grew by a very low 0,4% in 1998. Nedcor forecasts 0,5% real export growth in 1999, followed by 4% growth in 1999. On the upside, the expected upturn in the macroeconomic cycle in late 1999 and early 2000 should provide some benefits for the sector, especially when considered in the light of government initiatives like Spatial Development Initiatives and Industrial Development Zones.

For 1998 Statistic's S.A. reports that industrial space in Gauteng grew by 306,085m2 - or R398 million worth of new industrial & warehousing buildings completed. Significant activity was seen in the following nodes especially:

  • Boksburg -- 26,120m2
  • Germiston -- 45,181m2
  • Midrand -- 64,327m2
  • Randburg -- 21,050m2
  • Johannesburg 20,231m2

Industrial development activity in Pretoria, even Centurion, was limited. However, the data for building plans passed amounted to 582,426m2 which indicates the level of activity expected in 1999 and 2000.

Before turning to a nodal analysis, please consider the following graph of prime industrial land prices in the Central Wits, East Rand and Pretoria regions. Central Wits remains a cut above the other two areas, although the East Rand does generally see higher prices than Pretoria’s industrial nodes.

Johannesburg's southern industrial nodes have seen fairly steady levels of activity over the past year, especially along the M2 motorway from the Crown node and eastwards, although rentals have remained static in the main. Some evidence of sales activity is emerging, especially since interest rates have started to decrease.

As a benchmark, industrial land in good nodes is achieving in the region of R140/m2 to R150/m2.

Tenants are, in some cases, opting to purchase their buildings at good prices as the availability of bargains rises with a more lenient view on the part of sellers. This is expected to drive up the level of sale activity in the industrial sector in the next few months.

The older nodes like Selby continue to see some activity, but generally it is driven by movement within the node - as a result of expansion or re-structuring - rather than the entrance of new tenants. Re-development does not appear to be a viable option in the industrial market, where it is often cheaper to build a new property in a more desirable area than to attempt to reclaim an old one. In the case of node suffering from urban decay, the swift decline in rentals offers the best hope for improving occupancy levels.

On the topic of surrounds, the industrial market continues to seek out an aesthetically pleasing environment - although perhaps not to the same extent of the office sector - in addition to functional features that are well designed and practical. Issues such as access - within the node, not only to and from the node - and proximity to markets are still stock requirements for industrial development.

In City Deep, Fedsure Park has attracted tenants as diverse as mining procurement companies, aluminium window manufacturers and retail distribution centres. Recent deals of between 600m2 and 4,000m2 have been concluded at gross rentals of between R14/m2 and R20/m2 - although local brokers reckon that R16/m2 is a good, general benchmark for new space in these areas. The proclamation of additional land, with rail access, in City Deep has been tenanted by import/export companies.

There is an initiative afoot to establish a Special Economic Zone at the container terminal and the effect of this on the industrial property market would be interesting.

Crown City has seen some warehousing development, but office projects are less likely to happen in the short- to medium-term - not least because of the lack of retail amenities for office workers. Nearby Ormonde, on the other hand, can offer shopping facilities to office staff and is achieving gross rentals in the region of R32/m2. Property managers too report that demand in Crown has been high and cite the example of Crown Industrial Park.

In the north-west, Strijdom Park has evolved into a light industrial node with a strong focus on wholesaling, bulk retailing and services. One of the consequences of this is that the rentals in the node have moved steadily upwards, in excess of the range normally associated with the industrial sector. Further north, Kya Sands continues to develop, with a trend towards smaller mini-units and owner-occupied premises.

Certainly the industrial market is moving along, but at a consistent pace rather than swiftly. The one main exception to this would seem to be Linbro Park in Sandton, which has developed very quickly over the past few years especially since the completion of the London Road off-ramp. Despite the fact that this off-ramp is also the access point from the N3 highway to Alexandra, there appears to be a market perception that Linbro Park is 'separate' from Alexandra, and thus not plagued by the problems of crime usually associated with the former township.

Wynberg is seeing some interest from smaller users, but strictly on the industrial side. Gross rentals being achieved for this type of space are between R10/m2 to R14/m2. Existing office properties in the node are difficult to lease and the node is not perceived to be an office location. However, businesses servicing the commercial node in Sandton are in evidence, like motor-related workshops. Larger premises are proving harder to let.

The northern nodes of the East Rand - and especially Kempton Park - are continuing to enjoy strong levels of activity and although the market remains tight, deals are being done and there are the first signs of a market upturn. Sufficient stock exists to cater to demand, especially with the movement of tenants caused by buy-outs, contractions and expansions.

One of the constraints in the market is the lack of supply for large spaces. Although small businesses are playing an increasingly important role in the industrial market, the demand for industrial property in excess of 10,000m2 does exist and is difficult to accommodate. The key problem is that large-space tenants are generally unwilling to pay the rentals which developers require in order to make these big projects viable.

Midrand continues to grow northwards towards Centurion, with activity evident in developments like Corporate Park and Century City. Premises with freeway frontage at Corporate Park are enjoying consistent demand and local brokers report that gross rentals of between R22/m2 and R23/m2 are the norm for office/warehousing space with the trend being for approximately 30%to 40% of offices. Century Park, which lies in Centurion itself is developing as a distribution node, taking advantage of good access to the north and the south.

One of Midrand’s strengths is its ability to meet demand for a single office/industrial address, but the question is what effect this has on the retail sector. The existing capacity constraints in the Midrand node must also be a key consideration for retail and entertainment projects.

In the long term, the expected opening up of AECI land in Modderfontein - and the planned improvements to road infrastructure as a result - could be of great benefit to Midrand by opening up better access to the East Rand, and thus Johannesburg International Airport. On the subject of roads, the opening of the New Road interchange did seem to alleviate traffic when it was opened last year, although some local brokers say that additional access and the construction of new roads will be necessary to provide additional capacity in the future.

While Midrand to the east of the M1 motorway has tended to develop faster because of better infrastructure, the west is also seeing its share of property market activity - especially in the office market, as discussed above.

Brokers report that demand in the node has flattened, rather than declined, in the past year but point to a growing under-supply of space which should push rental up in the next few months. New tenants include upmarket furniture showrooms, pharmaceutical companies and the like but the information technology sector is a primary driver of new demand for space.

A final comment on the Midrand market is that there seems to be a growing differential between A-grade and B-grade premises. Whereas space in Midrand has seen little variation between the grades in recent years, a separate B-grade market is reportedly emerging at around R18/m2. Brokers say that B-grade vacancies are higher than A-grade, despite the rental differential. This is arguably a result of the high-tech requirements of many of Midrand’s tenants. The question is whether or not the potential to exists for landlords to renovate and upgrade B-grade premises to A-grade standard.

In Pretoria’s industrial market, Centurion is currently the rising star. Although not as popular as Midrand, the node offers many of the same advantages at - currently - lower land prices and rentals. Distribution centres, mini-factories and other industrial space are in evidence in the node - especially Samrand, Hennopspark and Highveld Park - but activity is not limited to industrial projects. JHI is also aware of office and retail projects which are also being planned for Centurion.

Industrial brokers report that, in other nodes, enquiries are tending to be for larger industrial premises, rather than mini-units or mini-factories, and that this demand for larger space often cannot be accommodated. With high interest rates, new developments is seen to be overly expensive and this is exacerbating the market’s inability to cater to demand. Traditional industrial nodes such as Waltloo and Rosslyn are quiet and there is a perception that they are starting to look rundown and old. At the bottom end of the market, premises are available for as little as R2/m2.

Infrastructure - The hot topic for the new millennium

Clearly, one of the major recurring themes that has emerged from the foregoing nodal commentary has been that of infrastructure provision. Throughout the province, if not the entire country, there are growing concerns regarding inadequate infrastructure - both in terms of maintenance and new investment. In fact, the pressing nature of infrastructure maintenance and capex could make infrastructure the most critical issue for the property development market into the next millennium.

Property managers throughout Gauteng have tended towards a 'self-help' approach. Investors and developers are becoming accustomed to contributing to infrastructure costs for their development projects. Talk of development levies on commercial and industrial property has been raised in other provinces, with the result that the issue of ring-fencing infrastructure contributions has become a major one.

Infrastructure lays the foundation for development, be it residential or commercial and industrial. As one indicator of the scope of work currently being undertaken to ensure infrastructure investment, the Development Bank of Southern Africa reports that it approved R4,305 million of funding for infrastructure projects during fiscal 1997/9. These projects in total are valued at R13,500 million.

In Gauteng province, the DBSA funding was allocated for a diverse range of projects for various different recipients. Eight projects received funding from the DBSA in 1997/98. While three were for educational and community-related projects, five were for direct infrastructure investment:

It is noteworthy that the funding for infrastructure projects has been wholly awarded to metropolitan authorities.

1997/98: Gauteng
Source: DBSA Projects for 1997/98

The National Market Context

The 1998 report of the SAPIX/IPD South African property index for 1998 clearly showed the tough trading conditions that the commercial and industrial property market has faced in the past 12 month period. Total returns posted for 'all-property' fell from 17,9% in 1997 to 4,9% in 1998. The retail sector returned the best performance at 10,5% for the year, while industrial properties lagged behind the other sectors with a negative 0,3% return.

However, the SAPIX portfolio includes only institutionally-held properties, which excludes any activity in the private or individual investor market. This raises an interesting question. Since institutions have made clear their intention to right-size property portfolios and move into other investment sectors, the market has opened up to smaller investors.

Despite the fact that high interest rates have been a dampener on the property investment market - particularly for private investors, who more often than not gear their properties - there has been movement in this sector of the market. In fact, this shift has been evident in the Pietermaritzburg market, a phenomenon which is discussed later in this report.

It is worth bearing in mind that the South African commercial and industrial property market is highly differentiated - between sectors, between locations and between buildings themselves. The intention of the JHI Kwazulu-Natal Property Report 1999/2000 is to examine some of the broad market trends in the province, look at constraints that exist in the market and comment on changing dynamics.

Against this backdrop is one issue which raised it's head a number of times during the research for this report, namely, the issue of confidence. Confidence in Durban's property market has arguably taken a knock because of the number of 'on again/off again' projects which have received wide coverage in recent years. Examples include the Point Waterfront development, the Bluff hotel and leisure project. The ongoing debate regarding the location of Durban International Airport, and even the lack of clarity regarding the provincial capital although this affects Durban itself less directly. Although this is largely seen to affect external investors, it seems likely that a situation like this would also affect local investors and developers.

The Durban Market

Before turning to specific nodes and sectors, it is important to consider general property market indicators.

Lease escalations have dropped from the 12% mark and are now moving closer to 10%. The market continues to use the consumer inflation rate as a benchmark for lease escalations, despite the fact that the basket of goods used to calculate inflation has little relevance for the property sector. Local value repotrt that in some cases, rent reviews have brought actual rentals back to market levels - except in prime nodes like the Berea and Umhlanga. The main issue regarding operating costs is increases in rates and taxes, which commercial property owners are monitoring carefully.

Capitalisation rates are continuing to weaken in general, but with an additional trend emerging. The gap between yields that are acceptable to investors, and yields which are acceptable to owner-occupiers, is widening. In line with national trends, it seems that investors are focusing less on the property transaction than on the financial transaction, or in other words purchasing an income stream backed by a blue-chip lease.

Consider the following table:

Typical % of Yield Sought for Prime Property By Sector and Type

 InvestmentOwner Occupation
Office13% - 15%11.5% - 13%
Retail13% - 14% 
Industrial14% - 16%12%-14%

Please note furthermore that CBD office buildings are multi-tenanted and therefore usually owned for investment purposes. On the retail side, the yields listed above are for well-located centers with a high proportion of national tenants. Smaller centres in poorer areas can display yield of 18% to 22%.

The Office Sector

The total Kwazulu-Natal Market saw some 76,180m2 of the office space being completed in 1998. Of this, some 42,535m2 was located in Durban. The second largest development node was Umhlanga, which saw 18,069m2 of new office buildings completed during the year. In terms of office plans passed, Kwazulu-Natal ranked in third place nationally, but with a fairly low 9,3% of total office plans passed in South Africa.

Arguably, Durban's CBD office market is confined by a lack of topnotch space. In addition, the A-grade office market seems to be shifting to the north-eastern side of the city, away from what is being seen as the lower income retail market in the west. There is a view in the marketplace that Field Street is becoming the western boundary of the city's A-grade office node. Westwards from Grey Street is being seen as an active, high-volume but low-price, retail node - with low demand for offices. Within the context of this east/west split of the Durban CBD, it seems fair to say that premier office space is limited to perhaps three main buildings, such as the old Mutual Building on Smith Street, The Marine Building on Victoria Embankment and 320 West Street. Rentals for good office space on the 'eastern' side of town can be as high as R46/m2, gross. The Embassy Building is also A-grade, although it is located slightly on the periphery of the CBD's prime office node.

Latest SA Property Owners Association (SAPOA) data indicate that Durban CBD currently has a 23,7% vacancy in A-and B-grade space.

The striking feature about Durban's decentralised office market is that there is a great deal of land already planned for development, albeit confined to three major projects. The question is whether or not these new office parks have not 'psychologically' saturated the local office sector, since there seems to be a market view that, between them, there is sufficient space for office development to cater for several years' worth of demand.

The other trend worth noting is the preference to develop nodes, rather than just space. Projects like La Lucia Ridge Office Estate and Westway Office Park are in fact becoming nodes in their own right, and have the potential to become almost self-contained mixed use nodes - not dissimilar to what is being seen in other South African developments, like Melrose Arch in Rosebank, Johannesburg and Century City in Milnerton, Cape Town. This is perhaps even more true of the Umhlanga Gateway New Town Centre project, which is being planned adjacent to the La Lucia Ridge Office Estate.

At the periphery of the CBD is the Kingsmead Office Park in the Kingsmead node, which is located close to the Hilton, the international Conference Centre, Unisa and the SA Reserve Bank buildings - all within walking distance. The rationale behind this development is the provision of 'decentralised' office facilities, but at the edge of the traditional CBD. Local brokers report that, to date, committed tenants are: Marriott Property Services with 4,000m2, Grinaker with 1,800m2 and KPMG with 3,000m2.

There are market analysts who question the amount of bulk available at Kingsmead Office Park, and say that the take-up of space during the next phase will be vital to understand the node's future success. The type of tennants who move in will also be integral to determing the profile of the node in the wider market. By the end of the year, gross rentals at the park are expected to be between R55/m2 and R60/m2.

It is also worth noting that the office development on the upper deck of Durban Station seems to have had a positive effect on the area, with tennants like Speciality Stores, Mr Price and Milady's making this location their base. Their presence, combined with other projects and amenities in the area, could see this node becoming an active one in years to come.

On the Berea, there is extremely limited supply and rentals can be as high as R55/m2. Office space in prime Musgrave properties such as Price Waterhouse Place, Silver Oaks and Musgrave Centre is reportedly fully let, although there are some small pockets of vacant space along Rodge Road, where rentals are slightly lower at around R45/m2. SAPOA reports that the Berea currently displays a vacancy rate of 4,5%.

To the west, Westway Office Park in Westville continues to benefit from proximity to the Pavilion Shopping Centre, in addition to good road access. Tenants include IT companies like Dimension Data, and financial services tenants like Santam, in addition to the Murray & Roberts head office.

Westway Office Park does have the benefit of cheaper land prices than Umhlanga, but the land is hilly and development has to take account of this. Land is selling for about R500/bulk metre and the majority of development is being done with a bulk of about 50%. Brokers report that the levy at Westway Office Park is also cheaper than in certain other nodes. Overall, the Westville node shows a vacancy rate of around 5,7%.

Although rentals in the Durban CBD, Westville and the Berea have stayed quite close to each other, the most recent data seem to indicate that CBD rentals are slowing while the decentralised rentals are on the rise. JHI Research has found that the rental differential between Durban CBD and decentralised nodes is not as marked as in the case of Johannesburg.

La Lucia Ridge Office Estate has for several years now been tipped to be 'the Sandton of Durban'. It is situated in upmarket Umhlanga with good access from the N2 and M94, with Umhlanga Rocks Drive providing the main arterial route through the development. Certainly the node has attracted the head offices of several banking and financial services groups, including Forbes Financial Services Group, BOE Corporate, BOE Private Bank and Deloitte & Touche, among others. Gross rentals at the estate are R50/m2 to R55/m2, including levy and parking. Brokers estimate that by the end of the year, rentals in the node will be R60/m2.

Moreland's figures show that of 100,000 bulk metres available at the estate, some 87,000 have already been sold. A further phase of 50,000 bulk metres is soon to be made available to the south-east of the existing node. Rates for land are between R900/bulk metre and R1,350/bulk metre. Brokers point out that developments are generally displaying a lower bulk than in other office nodes, with the trend being towards bulk of about 30% to 55%.

Perhaps the most significant characteristic of the prevailing Pinetown office market is the strong demand for shorter-term leases. Tenants are making clear their concerns about interest rates, politics and the economy. In the office sector, for example, the incidence of demand for leases of six to twelve months is increasing. The sector is generally tenanted by branch offices, local businesses and other independent operators. There are few national tenants and office buildings are generally B or C grade. Gross office rentals for the better premises available are in the region of R25/m2 to R27/m2.

The Retail Sector

On a national basis, Kwazulu-Natal usually ranks third in terms of retail sales, after Gauteng and the Western Cape, and 1998 proved no exception. In fact, the Western Cape's retail sales were 2,5% higher than Kwazulu-Natal - a relatively small margin. Put in a different way, these three provinces account for about 70% of total retail sales in South Africa. The following chart depicts the provincial contributions:

Looking at Durban specifically, it is interesting to note that in terms of retail spend, the city is about in line with Pretoria at the R12 billion a year level. This remains lower than either Johannesburg or Cape Town, which stand closer to the R18 billion a year mark.

 JohannesburgPretoriaCape TownDurban
Retail sales in RmR18,377mR11,835mR18,133mR11,807m
Source: BER

Finally, consider the following chart which illustrates retail sales in Durban over the past two years. Despite the seasonal peak in December, there has been little growth in the level of retail sales over this time period. In nominal terms, growth has amounted to just over 11% i.e. not adjusted for inflation.

During the course of 1998, 74,926m2 of new retail space was brought on-stream in the province, with 29,168m2 of this in Durban itself. This indicates that retail development was more widely dispersed throughout the province than was office or industrial construction. Indeed, areas including Stanger, Margate, Tongaat and Umhlanga all saw retail development of more than 5,000m2 during the year.

Perhaps the most ambitious retail project being undertaken in the Durban area is old Mutual's R1,4 billion Gateway Shopping & Entertainment Centre. The centre will offer almost 120,000m2 of shopping and entertainment facilities. Although the future of the project has been uncertain for the past year or two, construction has now begun and the centre is due to open for trade in late 2001. There has been some debate over the consumer market which will be attracted to the centre and, importantly, the impact of the centre on the existing La Lucia Mall - both of which the property market will monitor with interest.

Moreland reports that the Umhlanga Gateway New Town Centre, of which the mall is a pivotal component, will combine the following land uses:

Total area142 hectares
Gateway Shopping & Entertainment Centre28 hectares / 119,000m²
Area for New Town Centre33 hectares/360,000 bulk metres
Area for Business Park24 hectares/135,000 bulk metres
Area for Residential14 hectares/351 residential units
Land for Civic Use10 hectares

Source: Moreland

It is noteworthy that this development is facilitated by the fact that a single land-owner, Moreland, is involved which arguably allows for the pro-active planning of the Town Centre and its environs. The land owner is also committing R68-million to the improvement of bridge and road infrastructure, which will be completed before the Gateway Centre opens for business in late 2001.

The highest retail rentals being achieved in Durban, as in other South African cities, are still in the decentralised shopping malls. Shopping centres such as Musgrave and the Pavillion can see gross rentals as high as R200/m². In the city centre, West Street remains a key retail strip and line shops are achieving around the R120/m² mark for prime space, depending on size. Shopper demographics have also shifted at The Workshop and The Wheel, but the Workshop particularly appears to be adjusting its tenant mix successfully with 1,000m² having recently been let to Mr Price and Mr Price Home.

In Pinetown's retail market, Sanlam Centre Pinetown is expected to get a boost from its refurbishment and expansion, which will see the entry of Health and Racquet Club. Interestingly, the demographic shift which has taken place in recent years in Pinetown's CBD is also evident in the centre, with black consumers reportedly making up some 30% to 35% of traffic through the centre. Rentals for line shops at the centre range from R130/m² to R180m², depending on the size and location of the store.

Hill Street in the Pinetown CBD, nevertheless, remains a tightly-held and institutional retail node trafficked by mainly black consumers in the middle- to lower-income bracket. National retailers like Sales House, Jet and Edgars are represented along this strip, demand levels are seen to be high and the Hill Street taxi rank provides an important source of commuter trafic along the road.

While on the subject of the retail and entertainment sector in Durban, it is worth bearing in mind that two preferred applicants for casino licences have been announced in the marketplace - Three Cities' R1,6 billion proposal for the Village Green site and Afrisun's proposed R900 million development at Umdloti.

The Industrial Sector

Overall, in KwaZulu-Natal during 1998, the amount of industrial and warehousing plans passed amounted to 227,546m², while the amount of buildings completed in this sector amounted to a slightly higher 240,336m². The following table provides a breakdown of the major nodes which have seen activity in industrial plans passed data imply a market outlook for the next 12 to 18 month period, since developers take a view on demand growth when they start the developement process.

1998 Plans Passed in m²Buildings Completed in m²
Inner West City Council27,848120,922
South Local Council19,52713,668
Source: Statistics SA

Brokers report that while there is some leasing activity taking place in the market, there is a perception that rentals are not generally seeing much movement. One of the constraints on the market is that there is a dearth of good quality space, and a dearth of large premises - the latter is a factor emerging in several markets around the country.

With regard to historical data it is interesting to note that although the Central Wits area has pulled ahead of Durban and the Cape Peninsula industrial nodes in the past two years, these three cities are seeing rentals that are much in line with each other. Pietermaritzburg, however, has not kept pace with other centres - a market characteristic which is dicussed in more detail later in this report.

There is a study by the CSIR currently underway to look at the Southern Industrial Basin and its longer term potential for industrial growth - not suprisingly, as the region contributes some 65% of Durban's contribution to the GDP. Described differently, this area accounts for abut 5,5% of the national GDP. The report's preliminary findings indicate four possible scenario's for development of the basin, with the latter two being identified as the most likely growth stimulants.

  • A mixed-use, light industrial and housing option;
  • a petrochemical hub option
  • a second port option; and
  • a combined port / petrochemical option

In considering the future of the Southern Industrial Basin, the uncertainty issue once again raises its head in the Durban market - this time regarding the relocation of the airport. On the one hand, the Prospecton node could stand to benefit from the re-location of Durban International Airport, as this would likely release land parcels for industrial development although there would no doubt be the loss of some tenants to the new airport node at La Mercy. On the other, the relocation could provide a boost for areas like Mt Edgecombe and Phoenix. Until a decision has been made, these location decisions remain a moot point.

Prospecton is nonetheless a fairly active node, with existing tenants like Robertsons and Toyota. Gross rentails are around the R12/m² to R15/m² level, although there is little vacant space available. Jacobs is seen to be an older, unattractive node which is also zoned for noxious uses. Access is not optimal and much of the existing stock suffers from functional obsolescence. Rentals range from R6/m² to R10m², at the top end.

To the west, the Pinetown industrial proprty sector has seen high levels of activty in 1999 to date, with JHI's Pinetown office reporting that some 85% of all deals conclude were in the industrial market. Tenants tend to be mixed, with enquiries emanating from a broad range of industries like transport, heavy engineering and others.

Benefits of the node as an industrial location include proximity to labour resources, access, proximity to major markets and interprovincial freeways, plus relatively competitive land prices. Top-end land is achieving close to R185/m² with some deals done at the exceptional price of R200/m². Please note that these prices are quoted on a net useable basis, not a grss area.

The northern industrial nodes have seen fairly consistent activity in recent years, with the Durban Metropolitan Council reporting that more than 120 factories and office buildings have been built in the city's northern suburbs since 1992. In 1997, for example, the North Local Council passed plans worth R240 million.

Moreland alone reports that 80 factories have been built on their various industrial estates at Briardene, Canelands, Redhill and Mt Edgecome. Over 30 of these have been built since 1996. A further indicator is that almost a quarter of the North Local Council's total rates bill is derived from Moreland's developments in the Umhlanga and Mt Edgecombe areas (that is, including commercial and industrial space).

Finally, comment is justified on the Cato Manor Development Project which presents a new, mixed-use opportunity for Durban's property market. It was established in response to the fact that Cato Manor was identified as a key development area within the metropolitan boundaries. The project area covers some 1,800 hectares and is located seven kilometres west of the city centre. At this initial stage, it is envisaged that the area's 900 hectares wwill include 153 h
Publisher: JHI
Source: JHI

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