Sunday, November 18

Potential of micro units not yet fully realised

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A micro unit in the Cape Town CBD would then measure about 28m² to 32m², and attract a monthly rental of between R8530 and R9749.

The trend globally towards micro unit living could be the answer to rising affordability challenges in Cape Town’s CBD, but this potential has not been realised.

This is because local developers are selling these as sectional title investment properties instead of developing rental complexes. 

Analysing the residential micro unit trend in terms of its ability to address affordability in popular downtown areas, The State of Cape Town Central City Report: 2017 – A Year in Review notes the micro unit concept gained traction overseas after living “downtown” increasingly became a luxury few could afford.

Read: Millennial trends clear as micro units are snapped up

The report said that a 2013 study commissioned by the US-based Urban Land Institute on the market performance of small or “micro” units found the rising cost of land and construction costs resulted in developers seeking ways to offset costs while maintaining a relatively affordable rental for those wanting to live close to where they worked.

“Fast forward five years from the study, and the Cape Town city centre is only now beginning to experience the micro unit trend, with the first units advertised during last year,” says Carola Koblitz, editor of the 2017 report.

“What does differ, however, from the original rise of the concept in cities across the globe, is that instead of the development of entire complexes as rental units, units are being developed for the sectional title market and sold at prices that will have to bring in high rentals if investors hope to see a return on their investment.”

The US study explained micro units there were being leased at a higher rent per square metre, yet rentals were still about 20% to 30% below standard rentals for conventional-sized units. 

While no precise definition of a micro unit’s size was determined, it was deemed that such a unit would also typically be 20% to 30% smaller than a conventional studio apartment. 

Using this formula, Koblitz says a micro unit in the Cape Town CBD would then measure about 28m² to 32m², and attract a monthly rental of between R8530 and R9749. 

But because these units in the city are being sold to investors, who then rent them out, the rental amount to make the investment worthwhile will have to be higher, and this is where the problem lay. 

“In terms of the rental per square metre asked for these units and rentals that will need to be achieved to satisfy investors, it seems the potential of the micro unit to enable young professionals to live and work in the CBD has not yet been fully realised.

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