Commercial property developers and investors hoping for the best returns in an unstable economy - regardless of the general election outcome later this year - should focus on mixed-use developments.
Like property sales, commercial development has experienced lower demand and supply in the country’s economic climate over the past year, but Dave Williams-Jones, chief executive of FWJK, says mixed-use inner-city developments comprising retail, residential and “even office and hotel components bolted together” is the trend.
This will still be the case after the general election in May, when the commercial market is predicted to improve.
“The concept of live-work-play will continue to build in the major centres of South Africa,” Williams-Jones says.
“The aspect of convenience for tenants and occupants will become important in defining good and bad commercial developments.
Mixed-use commercial and residential developments must include features such as on-site places for staff and corporate entertainment on roofdecks, and coffee shops and restaurants located within the development.”
All of this will attract potential tenants over mundane office blocks as occupiers will have things to do within the building during lunch time. The South African market now understands mixed-use developments are increasing in popularity, says John Chapman, a director at the Rabie Property Group.
“These developments need good IT infrastructure, accessibility and adequate parking,” he says. Mixed-use precincts are not impervious to the challenging market forces but Nicholas Stopforth, managing director of Amdec Property Developments, says the group’s vacancy rates in these developments – such as Melrose Arch in Joburg and Harbour Arch in Cape Town – “compare favourably” to the general market.
“We see mixed-use precincts remaining a key differentiator for us. They offer commercial and residential tenants a unique value proposition that combines security, convenience and a high-end lifestyle that caters to all their needs. Demand for these developments is higher than ever thanks to the ability of living, working, and relaxing in the same precinct as well as driving impetus behind the 24-hour city living concept eschewed by New York, Paris and Cairo.”
On the other and, however, Chapman says there is an oversupply of A-Grade offices and the retail market is saturated.
“The best-performing sectors currently are probably in the good industrial areas where the focus on logistics and distribution has spurned new developments. Niche redevelopment opportunities in old areas that are now becoming sexy – examples are Woodstock and Salt River – can offer good returns if the initial prices offer value and the developer gets his approvals and timing right.”
Sustainability will continue to be a major trend with developers under pressure to incorporate water-wise features in new developments, Stopforth says.
“Commercial buyers are looking for sustainable solutions to combat environmental crises in future. People are asking what developers are doing for the environment.”
In the pipeline
Some commercial developments on the cards for 2019 include:
- A convenience retail centre in Century City and a mixed-use development comprising a hotel, apartments, retail and office space – Rabie Property Group
- Sable Corner - A premium-grade office block on Sable road in Century City – Rabie Property Group
- Mixed-use developments Illovo Point and Illovo Central under construction in Joburg –FWJK
- Mixed-use space in The Vogue on Buitengracht Street is currently selling– FWJK
- Mixed-use developments Ridge 7 and Ridge 8 are under construction in Umhlanga – FWJK
- 70 000m
² will be developed in Melrose Arch – Amdec Property Developments
- Construction of the first tower in Harbour Arch will commence in February – Amdec