Handful of corporates driving commercial property development in metros, creating vacancies in older buildings
A noticeable increase in the rate of commercial property development in South Africa’s main metropoles is being witnessed this year, despite the country’s struggling economy.
This increase is driven by a handful of large corporates operating within the professional services industry. Elias Tzouvanni, co-director at Nexus Property Group, says these corporates are either constructing their own buildings or are developers building commercial office space for corporates to rent.
This is creating large vacancies in older, secondary commercial properties where these businesses were once housed, he says.
“Examples of major developments taking place in these metropoles include the Discovery global headquarters in Sandton – the largest single-phase commercial office development in Africa, – as well as the KPMG Place development going up on Cape Town’s Foreshore, due to be completed in 2018. This is an example of a property built by developers with the aim of securing a large corporate tenant.”
Tzouvanni cautions that this kind of commercial development may potentially produce a false sense of market activity and confidence to investors and developers who may not have the means, or financial backing, of the big corporate players.
These developments do, however, create attractive investment opportunities within the secondary office and industrial node market, he says.
“As a result of these companies moving into developments, there is a lot of property being released into the market by listed property funds, which opens up a lot of opportunity and creates a strong secondary buyer’s market at lower and more sustainable pricing for tenants and companies wanting to buy their own offices.”
Furthermore, Tzouvanni says in any market there are always going to be pockets of opportunity which astute investors and developers will take advantage of.
“Even in a slow market, there will always be activity. The important thing, from an investment perspective, is to always take the bigger picture into account and avoid getting swept up in alluring high-cost commercial developments that may not be conducive to the current market.”
In addition to FWJK’s KPMG Place, other major developments in Cape Town include the 18600m² office park, Sable Park, which will include new regional offices for Discovery.
Developed by the Rabie Property Group, the R460million development comprises two four-storey buildings fronting on to Sable Road, and will have uninterrupted mountain and sea views.
“Discovery is taking the larger of the two buildings with strong interest being shown in the remaining 8000m² block. This development is due for completion towards end 2018,” says a Rabie director, John Chapman.
The company is also busy with the redevelopment of the City Park building in the CBD in a joint venture with Ingenuity Property Investments.
Another new development is 35 Lower Long, a 24-storey office tower that is being developed in the City Bowl by property developers Abland, together with their joint venture partners, The Ellerine Brothers.
Construction of the four-star green building is set to transform the site previously known as the Ernst & Young offices.
Work has already commenced with the internal stripping of the building and external demolition set to kick off this month. Completion is set for the first quarter of 2020.
Additionally, construction of Amdec Property’s 5.8 hectare Harbour Arch in the Cape Town CBD, which was launched to investors earlier this year, is expected begicommence next year.