Smack bang in the middle of Johannesburg, the Carlton Centre is a symbol of the inner city's rise and fall. As it battled decline, the Carlton boarded up its hotel, closed down its ice rink and mothballed its offices.

But now that it is owned and occupied by state-controlled Transnet, it is poised to reclaim its position as a premier commercial destination in a reviving CBD.  However, its return lies more in the strength of its owner and occupier than in simple urban revitalisation.

"The value of the complex is determined by the retail component and Transnet's occupancy," says Andre Marais, Gauteng regional manager of Transnet's property division, Propnet.

"Its value would have continued to reduce without Transnet's long-term commitment."  Transnet has already spent R50m revamping the office tower, 65% of which it occupies. Tenants such as lawyers, government departments, banks and Business Against Crime have taken up the balance. 

The next step is the reopening of 8 000 m² of commercial space in the Carlton Centre. The SA Revenue Service is launching a 5 000 m² regional service centre in the heart of the retail centre and a 2 200 m² Pick 'n Pay will anchor the newly reopened wing. An additional 800 m² is under negotiation. 

Pick 'n Pay property GM Izak Joubert says the supermarket chain wants to increase its city-centre exposure throughout SA. Though the Carlton Centre store will not be located on street level, he believes it will trade well. 

"Our store at The Bridge, just down the road from the Carlton, is about one-third the size it should be," he says.  Retail research conducted for the Carlton Centre last year found that half of the shoppers and office workers surveyed wanted either a supermarket or more national clothing retailers such as Woolworths and Edgars. 

Vacancies at the Carlton stood at 40% before redevelopment began.

But centre manager Shirley Mathomes says inquiries are picking up fast. Apart from those in the "new" space, book publisher Juta will be taking up 1 000 m² and Woolworths, Topics, Cash Crusaders, Panarotti's and Galaxy World have all shown interest.  The redeveloped space will bring the total size of the Carlton Centre to 53 000 m². 

Marais says that when Transnet bought the office tower in 1999, it also acquired parking basements, the parkade, ice rink, hotel and hotel annex in addition to the retail centre. The purchase price was just R32m. 

Plans are afoot to reopen the hotel. A feasibility study undertaken in 2003 found that a 200-room hotel could work. Residential development is one of the options being assessed for the remainder of the space.  "Since the hotel makes provision for 670 rooms, alternative uses will have to be found because the building can't be opened in small phases," says Marais.

"This is because of the necessary integration of services, such as fire-prevention, lifts, plumbing and air-conditioning."  Office rentals are R50/m² gross, which he says is in line with decentralised office space. Retail rentals are on a par with downtown retail property and can range from R30/m² to R200/m². 

Though Marais believes the value of the Carlton has increased since Transnet bought it, he declines to speculate by how much.  But capital values are indeed on the rise in the Johannesburg CBD, according to industry data. Office investments saw a 4,5% rise over the past year, reports Investment Property Databank (IPD).

From R1 014/m² in 2002, actual capital values jumped to R1 418/m² in 2003. It's the first year that positive capital growth has been seen in the city centre since the database was established in 1995. 

Rowan Tree Property Services principal valuer Claire Jones says that, compared with the office sector, retail property has remained relatively successful in downtown Johannesburg.

Retailers may have had to reposition themselves for a changing consumer market, but the sector has been active. She says revitalisation initiatives such as Gandhi Square and the Braamfontein Regeneration Initiative have boosted downtown shopping, but adds that these are isolated examples. 

Jones believes office investment is a more risky proposition and relies heavily on the character of the occupier and the security provided by the lease. 

"The value for office and retail properties in downtown Johannesburg now lies in the tenant - and quality tenure, such as Transnet in the Carlton, is hard to come by," she says.