Presenter: Lindsay Williams Guest(s): Neville Schaefer

Johannesburg central business district (CBD) renewal schemes have long been the target of sceptics. Neville Schaefer, chief executive of Trafalgar, is on the line about their report that says inner city renewal is real, and returns are higher than those to be had in the leafy suburbs

LINDSAY WILLIAMS: We spoke to AngloGold Ashanti a couple of months ago - they’re flying in the face of Sandtonites, putting up a big building in Johannesburg. I was watching the building going on there a couple of days ago - it looks like an impressive building, but is there really rejuvenation going on in the CBD’s of the major cities in South Africa? Neville, can you tell us about Trafalgar?

NEVILLE SCHAEFER: Trafalgar is a national residential management company - we manage some 66,000 residential units across SA.

LINDSAY WILLIAMS: Trafalgar’s inner city report is headlined the "Tale of Three Cities" - what is that tale?

NEVILLE SCHAEFER: The tale is Johannesburg, Pretoria and Durban - in that the Cape Town CBD is different, you’ve got a different sort of development there. So we talk about the inner city areas of Johannesburg, Pretoria and Durban - and compare them. In Johannesburg you’re having a lot of conversion of office space into apartments now - it’s really taking off, and it’s happening all over the CBD. Pretoria has had a rash of these as well, in fact the Pretoria Council is nervous that the conversion of offices to apartments - if it continues - could upset the balance between residential and commercial in the city. So Pretoria is actually ahead of Johannesburg in conversions. Over the last year we’ve seen that inner city tenants have become more savvy, and are demanding higher standards - landlords now have to deliver a higher standard, and gentrify their buildings...

LINDSAY WILLIAMS: Are there actually people living there or is it property speculators buying an office building for a song, converting a certain amount of it into apartments and putting them up for rent - creating the sort of hype that we’re propagating here? Are there real people living in real buildings?

NEVILLE SCHAEFER: Indeed there are real people living in these cities - and there’s huge demand. As you get this urbanisation there is huge demand - so while in the more affluent areas at the moment you have an oversupply of accommodation, and rentals have fallen - in the inner city it’s just the converse. There is huge demand, and rentals have risen very rapidly over the last year - about a year ago we were charging about R1,300 to R1,400 a month for a bachelor apartment in Johannesburg, now we are getting about R1,850 for a top of the range Johannesburg bachelor apartment.

LINDSAY WILLIAMS: You say bachelor apartments - so it’s the single people that are moving in there? Obviously the inner city is not the best place to bring up a family, at the moment anyway in South Africa with all the space we’ve got. So it’s the single people, the young people that are moving in?

NEVILLE SCHAEFER: Yes. We’ve got a range of bachelor, one and two bedroom apartments - I’m just giving you bachelor apartment rentals. Demand is not for family units - it’s mainly people that have come to the city to work, to study - so the profile of our tenants is younger, up to the age of about 35 we find...

LINDSAY WILLIAMS: With developments like Melrose Arch you can buy an apartment for a huge price - but you can go down in a nice safe lift to your nice car, or you can buy a fruit juice down at the bar, or a restaurant meal - it’s all nice and sanitised. In the city it’s slightly less sanitised - you may be taking your life in your hands when you pop out for a quick drink!

NEVILLE SCHAEFER: You must go down to the inner city now - the security situation is much improved, you’ve got the city improvement areas and the whole situation is really so much better. In the building where we had our launch today - which is being converted into apartments - you drive into the parking garage, take the elevator, and you’re home and dry!

LINDSAY WILLIAMS: What’s the comparison for example between Melrose Arch - a multi-use development - and the inner city CBD of Johannesburg? The price difference?

NEVILLE SCHAEFER: Hang on! At Melrose Arch you’d pay R3.5-million to R4-million for an apartment - as an investor if you rented that apartment out you’d battle to get R5,000 a month. In the inner city the cost of converting offices to an apartment is around R140,000 a unit - for that bachelor apartment you’d get R1,850 a month, for a one bedroom flat you’d get R2,400 a month - so yield-wise you’re far better off in the inner city. You would in fact achieve a rental return of approximately 12% now, while returns in the northern suburbs such as Melrose Arch returns have fallen from 2% to 4%.