Renewed interest in the Randburg CBD area, as well as the fact that an office property located in the node is soon scheduled to be auctioned online (http://www.propertyauctions.co.za) , provides an opportune moment to review some of the salient factors that may direct investor thinking.

Dynamics of note:

Arising out of long term concerns regarding urban decay in the central core of the CBD in particular, an improvement district has been established, the implications of which will need to be monitored going forward. The urban revitalisation project – a project that has been in the pipeline for nearly 10 years - includes fairly significant road works as well as the development and integration of municipal land. In mid 2005, a capex budget of R65million was approved for the node by the metro and performance benchmarks around issues such as rentals and vacancies have
been established to monitor progress. There has been some shift from high-order to low-order retailing, as consumer demographics and incomes have changed.

Property Indicators:

The perception is that Randburg buildings dominated by offices are often older and suffering from some level of economic obsolescence, although this is less true for properties located away from the central core area around the Old Municipal Offices. According to brokers the main arterial strips of Hendrik Verwoerd Drive and Republic Road achieve the highest rentals.

Office vacancies have come down quite strongly since mid 2003. Presently in 2005 the overall vacancy rate stands at just over 12% having come down from a peak of nearly 22%. Net annual take up is presently very robust and considering that there is no substantial new supply coming on stream, this bodes well for investors going forward.

The IPD vacancy factor does not tell the same story, though this is off a much smaller sample than the OVS survey and one must bear in mind the fact that the IPD is based on 2004 statistics. IPD median rentals are R47/m² with Rode prime rentals ranging between R47-50/m² and eProp rentals averaging around R35/m². Retail rentals can range from R25-65/m² as reflecting space listed on eProp.

Office rental growth has not been strong at only 9% over the past three years, but with improving vacancy fundamentals this could change for the better. Office initial yields are 10.4% and average asset value translates to R3985/m². According to the Rode survey, multi tenant cap rates are around 15% for B grade space and 13.4 % for A grade buildings.

One of the bigger refurbishments and repositioning of retail has come in the form of the Brightwater Commons phased upgrading and re-branding project by Grayprop. Redevelopment of the Checkers Centre mooted in 2004 has not progressed and in fact has been occupied by a church, of which there are now at least three new churches currently operating in the node. The Sanlam Centre has been repositioned as the Randburg Square and appears to be performing quite well at present. Major projects around the Hill Street precinct will have important implications for the CBD core going forward; particularly as the Jan Smuts/Hill Street reconnection could revitalise this core area and promote new retail redevelopments such as envisaged for the Checkers Centre.

Excluding the Brightwaters project located outside the node, retail supply amounts to about 118 000m².

From a sales perspective, data filtered for transactions above R2.5 million - and thereby assumed to represent commercial property - show that the average transaction over the nine years has been around R21.5 million, or R11.3 million excluding 1997 when the data was skewed by large transactions involving the Randburg Waterfront.

Over the past 8 years there have been on average 22 transactions per year involving values above R2.5 million.

Land typically retails for around R150-200/m² for the purposes of higher order residential developments. Typically 4015m² stands have sold between R500 000- R900 000. Plans for the Old Municipal triangle site at the intersection of Jan Smuts and Hendrik Verwoerd include proposals for residential apartments. Growth of the residential fabric in the node in general should also help to support the retail sector.

Outlook:

Randburg is a relatively mature buiness node, located in close proximity to prime commercial nodes, including Bryanston and Sandton business district. The node is perceived to be a secondary commercial node, however, and has lower rentals and higher yields than the aforementioned areas. Urban decay has become a concern in recent years and critical to its future is the urban revitalisation project of the central core area spurred by local business, the COJ and the Johannesburg Development Agency as well as the success of the City Improvement District initiative.

Getting this right will dramatically improve perceptions about the node, all of which could see the property markets in the area reach a new level of investor and business interest.

Marc Schneider
Research
Tel (011) 441-0377
www.eprop.co.za
www.propertyauctions.co.za
www.thepropertyinvestor.co.za