South Africa’s commercial property sector is being challenged by the poor economic conditions and key to surviving - perhaps even thriving - is to focus on sustainability.
This is both from a financial and environmental perspective, says John Whall, chief executive of commercial development company Heartwood Properties.
One way development companies can ensure financial sustainability is to focus on specific markets and adopt a conservative approach to risk management.
Using his company’s strategies as examples, Whall explains how a unique tenant shareholding business mode can provide lower than usual risk. Tenants, he says, sign long leases of 10 or more years and, in return, receive a 20% shareholding in the properties.
This, of course, depends on their lease terms, financial stability and equity contributions. The benefit is a building is leased by tenants who, through their investments, are fully committed to it.
This type of model creates a long-term property partnership with tenants and encourages longevity, says Whall. This is crucial as properties with long-term leases lend themselves to increased debt levels.
“It’s a relatively low-risk strategy as the debt is matched to the long-term lease profiles.”
Heartwood, he says, uses a combination of debt and equity to fund new developments, with typically 30% to 40% being equity and the balance made up of debt for each development.
A strong focus on implementing green building principles and solar installations provides additional impetus to a development company’s sustainability efforts, Whall says.
Not only are commercial buildings which offer solar technology more attractive to tenants than those which rely solely on unpredictable Eskom power, they also offer reduced energy costs.
“Solar technology has become increasingly more efficient and effective in recent years, particularly as battery storage facilities have improved and costs have been reduced,” says Whall.
Solar solutions play not only an important role in the environmental challenges facing the world but tenants in such properties will be able to successfully weather load shedding.
Green building principles, he says, are no longer a nice-to-have, but rather an essential component of any sustainable property development company.