High vacancy levels mean loss of revenue
IN a world becoming increasingly technologically savvy, the concept of smart cities is rapidly shifting from theoretical to practical.
If municipalities want to dictate their own futures, they are going to have to show they’re willing to be driven by the digital age.
Deloitte Consulting Africa smart real estate leader Marco Macagnano says in a digital economy, data is the resource carrying the greatest value.
“Access to information is the catalyst to growth, enabling actionable decision-making, and attracting investment will be underpinned by providing that access. The private and public sectors have equal roles to play in sharing that data to promote growth,” he says.
He also believes tenants have an upper hand in neighbourhoods and buildings struggling with high vacancy levels. The challenge facing developers is not just loss of revenue, but constantly depreciating assets seen as being unable to respond to the market’s changing requirements.
“Essentially, the services offered by those spaces in the age of smart buildings and connected workplaces are inadequate and landlords are increasingly having to consider their revenue source is becoming a more complex combination of traditional square metres and the services and occupational intelligence offered by those spaces,” Macagnano says.
He says considering new forms of rental models is common, and repurposing older commercial space is an option where it is supported by the business case.
“This is highly context-specific and subject to complex socio-economic considerations. Landlords must consider reusing space for alternative purposes like residential living or even urban agriculture,” he says.
Cresa managing director Guy Voller says the smart city concept is “something of an oxymoron” since its truest definition is broader than merely a precinct effectively managing its resources through technology, but “a place that creates a better environment in which to live and work. This goes beyond tech and leads to a more responsible approach to the environment, allows for social interaction between different communities and classes, and affords liberty and anonymity to its citizens,” he says.
Voller argues monitoring people, as in Singapore, the world’s closest city to a smart one, might infringe on citizens’ rights. The city-state monitors and polices its citizens through everything from the granularity of their personal water and electricity consumption to cars and building efficiencies in a trade-off of liberty for security, a concept he believes most other societies will struggle to accept.
However, the smart city concept could prove the lifeline for South Africa’s inner-city buildings vacated during the decentralisation shift from the 1990s. Voller says few businesses occupy truly smart or eco-friendly buildings, but there is a greater awareness developing of these elements, despite the cost implications and the importance of balancing capital investment against long-term returns.
The development of P-grade office space for specific end-users and commercial occupiers has triggered surplus vacancies in A and B-grade offices that Voller says is inspiring out-of-the-box thinkers to repurpose older commercial and retail buildings.
“A and B-grade vacancies are well into double-figure percentages, irrespective of the city, and investors are pondering the treatment of these buildings to residential accommodation,” he says.
Macagnano says greenfields projects are providing for digital infrastructure, with traditional corporate tenants the dominant occupiers. However, the volume of “not smart space” outstrips “smart space” and there are trends developing to appeal to more agile office space supply in line with the changing needs of a “gig economy”.