The driving fundamentals of inner city rejuvenation appear better now than in the previous decade or two, due mainly to accelerating economic growth and a shortage of economic infrastructure such as roads and electricity distribution infrastructure, FNB Property Strategist John Loos says.

Writing in FNB's residential property market Q1 update, Loos said in the 1980s and 1990s there was an exodus of many retailers and companies to the former white 'suburbs' to the apparent detriment of the traditional Central Business Districts (CBD).

"Arguably the worst-hit was that of Johannesburg. Now, there is widespread talk of turnarounds in the fortunes for the likes of Johannesburg and Durban CBDs, while Cape Town can be said to have "made it" in terms of averting a Joburg-style catastrophe," he wrote.

There has been an increasing shortage of commercial property space, manifesting itself in declining vacancy rate trends in retail, office and industrial space categories.

Not surprisingly, therefore, inner city property values have had price booms similar to the rest of the country, as the massive decline in interest rates since 1998 along with stronger economic growth has boosted property demand, while supply has not adjusted rapidly enough, he noted.

However, price booms have not necessarily changed the relative position of inner cities, with much of Johannesburg inner city still lagging the city's decentralised 'suburban' areas.

He added that the revival of the Cape Town inner city, now well advanced compared to the other major inner cities in South Africa, has demonstrated the importance of an upmarket precinct which is an attractive playground for the "rich and famous".

"One wonders what Cape Town would look like today should there have been no V&A Waterfront development. I doubt whether nearly as many affluent people would have lived in the city bowl today. What one also sees now is outward growth of development from the core waterfront development, with the International Convention Centre and some top hotels being built outside of the waterfront precinct. Therefore, the precinct was the catalyst for development, which has now 'grown wings' as it moves towards the city," he said.

Loos added that he believes that over the years Durban is set to achieve a similar result, with dramatic upgrading of property surrounding its own new waterfront development.

Johannesburg inner city, however, has no such upmarket precinct, and rejuvenation efforts are arguably far more piecemeal. Nevertheless, on the Western side of the city things are looking promising as major South African lifestyle changes loom, he noted.

A rising shortage of office space in the Gauteng region is forcing many to re-examine the inner city as an alternative. This can be expected to drive a degree of building renovation for the purpose of office space, which in turn will serve to bring more employees to the inner city on a daily basis as the economic activity of the area grows, he added.

He noted it is important to raise the number of residents - as opposed to employees alone - with high levels of spending power in the inner city.

The increase in traffic congestion in the major metros may ironically be on the brink of providing a solution to this challenge through driving major changes in living and commuting patterns.

It will do this by raising the desire of an increasing number of commuters to reside within closer proximity to their place of work, because time on the road is effectively a cost, he said.

"Therefore, even for the troublesome Joburg inner city, the future looks significantly brighter. While there is no single precinct being developed on the waterfront scale, I expect that the establishment of a new Gauteng Government precinct in the South Western side of the city will be the catalyst for significantly higher demand for luxury residential and retail space in this area, with the Gauteng Government area linking precincts run by some large corporates to the south, and FNB precinct to the North in one enlarged precinct that is well managed, clean and upgraded.

"All-in-all, therefore, the future of the country's inner city property markets looks brighter than it has in decades, driven in part by a mounting congestion problem that is set to change the way that South Africans live, work and commute," he concluded.