SAPOA Property Review November 2014

November 2014

REVIEW

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South African Property Review

PROPERTY SOUTH AFRICAN

by-country focu try-

Property funds

WHO’S YOUR CHINA? Is Asia’s fortune cookie crumbling?

HYPROP On the up and up RETAIL PROPERTY TRENDS Keeping ahead of inflation PROPERTY FUNDS Rising prosperity EYE on AFRICA Kenya: still a market to watch

November 2014 Cover with Spine_NOV_SUBBED.indd 1

2014/10/10 10:42 AM

from the CEO

Food retailers under fire SAPOA CEO Neil Gopal addresses the anti-competitive behaviour of South Africa’s top food retailers, highlighting the recent inquiry made to the Competition Commission to investigate exclusive leases at shopping centres

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outh Africa’s large grocery retailers stand accused of anti-competitive behaviour.

In light of this very serious matter, SAPOA has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls.

SAPOA, the voice of the country’s commercial and industrial property sector, has levelled a formal complaint that names the Pick n Pay Group, Shoprite Group and Spar Group, but notes these are only some of a wider number of retailers that are parties to the conduct, which SAPOA asserts is anti-competitive.

Exclusivity clauses are usually requested by larger tenants as a condition for entering into long-term lease agreements, specifically in large retail centres.

Supermarket chains and property developers enter into and enforce longterm exclusive leases through so-called “anchor tenancy”. Typically, these leases are of a minimum period of 10 years, with renewal options up to 40 years. This means competing retail chains are excluded from particular shopping centres by “use and exclusiveness” clauses in lease agreements.

However, it isn’t only competing chains that are excluded. Specialist stores such as fruit and vegetable sellers, liquor stores as well as full-line grocery stores are also excluded in shopping malls where any one of the main supermarket chains is the anchor tenant.

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The retailers named in the complaint are among those that have concluded and continue to seek to enforce the exclusivity clauses, and thus exclude competitors.

Exclusivity clauses harm competition to the clear detriment of consumers. They restrict entry into the market by competing retailers, especially when a retailer’s entry strategy requires scale of activity and buying, distribution and selling networks.

Besides excluding potential new market entrants, including independent and small retailers, long-term exclusive leases also reduce competition between supermarkets and broader competitors. The anti-competitive effects and outcomes, including higher prices, are to the detriment of consumers.

This will not be the first time the Competition Commission has turned its attention to long-term exclusive leases in shopping malls. SAPOA’s complaint notes that in January 2011, the Competition Commission concluded part of its investigation against the four major supermarkets, and found that exclusive lease arrangements are of great concern and could result in anti-competitive effects in circumstances where supermarket chains have market power within the relevant local markets. Its analysis to date indicates that they may amount to a contravention of the Competition Act, particularly where supermarkets have market power.

In several recent merger applications before the Competition Tribunal involving commercial or retail property, the Tribunal has imposed a condition to the merger approval that the parties to exclusivity clauses in leases negotiate in good faith to seek an end to the relevant exclusivity clauses.

But the pervasive nature of the practice in the retail sector shows that asking parties to negotiate to drop exclusivity clauses is insufficient. Instead, it is perpetuating anticompetitive behaviour. Thus SAPOA contests the issue cannot be resolved on a case-bycase basis. It is impractical, expensive and wasteful of resources to have to bring complaint proceedings in respect of each lease agreement.

The anti-competitive effects may be much broader than a localised investigation on local markets will reveal. For instance,

a larger potential new entrant on a regional or national level, which relies on economies of scale in sourcing, marketing and distribution, may be discouraged by having to deal with local investigations and determinations, with existing incumbents defending their position with long-term exclusive leases.

In addition, should a supermarket seek to enforce the exclusivity clauses contractually, resources required for references to the Tribunal are extensive.

SAPOA has urged the Competition Commission to investigate a range of exclusive leases, which show different circumstances, nature, extent and geographic exclusions, when considering the issue, and to provide guidance by way of a precedent.

Neil Gopal, CEO

The Comp Com’s ongoing retail investigation In June 2009, the Competition Commission initiated an investigation into top South African supermarket chains, including Pick n Pay, Shoprite-Checkers, Woolworths, Spar, Massmart and Metcash, for possible contraventions of the Competition Act. The key concerns included the concentration of buyer power, category management, exchange of information and long-term exclusive lease agreements.

According to a media release issued in January 2014 by the Competition Commission, the Commission concluded its investigation into exclusive lease agreements entered into between supermarkets and property developers, owners and managers of shopping malls (landlords).

The Commission found that this practice raises barriers to entry into grocery retailing. However, the investigation did not find sufficient evidence to meet the tests set out in the Competition Act for demonstrating anti-competitive effects.

The Commission remains concerned about the barriers to entry into the grocery retailing industry and the potential dampening effects of exclusive leases on competition.

SOUTH AFRICAN PROPERTY REVIEW

CEO Review_NOV_SUBBED.indd 2

2014/10/15 9:59 AM

from the CEO

Food retailers under fire SAPOA CEO Neil Gopal addresses the anti-competitive behaviour of South Africa’s top food retailers, highlighting the recent inquiry made to the Competition Commission to investigate exclusive leases at shopping centres

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outh Africa’s large grocery retailers stand accused of anti-competitive behaviour.

In light of this very serious matter, SAPOA has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls.

SAPOA, the voice of the country’s commercial and industrial property sector, has levelled a formal complaint that names the Pick n Pay Group, Shoprite Group and Spar Group, but notes these are only some of a wider number of retailers that are parties to the conduct, which SAPOA asserts is anti-competitive.

Exclusivity clauses are usually requested by larger tenants as a condition for entering into long-term lease agreements, specifically in large retail centres.

Supermarket chains and property developers enter into and enforce longterm exclusive leases through so-called “anchor tenancy”. Typically, these leases are of a minimum period of 10 years, with renewal options up to 40 years. This means competing retail chains are excluded from particular shopping centres by “use and exclusiveness” clauses in lease agreements.

However, it isn’t only competing chains that are excluded. Specialist stores such as fruit and vegetable sellers, liquor stores as well as full-line grocery stores are also excluded in shopping malls where any one of the main supermarket chains is the anchor tenant.

The retailers named in the complaint are among those that have concluded and continue to seek to enforce the exclusivity clauses, and thus exclude competitors.

Exclusivity clauses harm competition to the clear detriment of consumers. They restrict entry into the market by competing retailers, especially when a retailer’s entry strategy requires scale of activity and buying, distribution and selling networks.

Besides excluding potential new market entrants, including independent and small retailers, long-term exclusive leases also reduce competition between supermarkets and broader competitors. The anti-competitive effects and outcomes, including higher prices, are to the detriment of consumers.

This will not be the first time the Competition Commission has turned its attention to long-term exclusive leases in shopping malls. SAPOA’s complaint notes that in January 2011, the Competition Commission concluded part of its investigation against the four major supermarkets, and found that exclusive lease arrangements are of great concern and could result in anti-competitive effects in circumstances where supermarket chains have market power within the relevant local markets. Its analysis to date indicates that they may amount to a contravention of the Competition Act, particularly where supermarkets have market power.

In several recent merger applications before the Competition Tribunal involving commercial or retail property, the Tribunal has imposed a condition to the merger approval that the parties to exclusivity clauses in leases negotiate in good faith to seek an end to the relevant exclusivity clauses.

But the pervasive nature of the practice in the retail sector shows that asking parties to negotiate to drop exclusivity clauses is insufficient. Instead, it is perpetuating anticompetitive behaviour. Thus SAPOA contests the issue cannot be resolved on a case-bycase basis. It is impractical, expensive and wasteful of resources to have to bring complaint proceedings in respect of each lease agreement.

The anti-competitive effects may be much broader than a localised investigation on local markets will reveal. For instance,

a larger potential new entrant on a regional or national level, which relies on economies of scale in sourcing, marketing and distribution, may be discouraged by having to deal with local investigations and determinations, with existing incumbents defending their position with long-term exclusive leases.

In addition, should a supermarket seek to enforce the exclusivity clauses contractually, resources required for references to the Tribunal are extensive.

SAPOA has urged the Competition Commission to investigate a range of exclusive leases, which show different circumstances, nature, extent and geographic exclusions, when considering the issue, and to provide guidance by way of a precedent.

Neil Gopal, CEO

The Comp Com’s ongoing retail investigation In June 2009, the Competition Commission initiated an investigation into top South African supermarket chains, including Pick n Pay, Shoprite-Checkers, Woolworths, Spar, Massmart and Metcash, for possible contraventions of the Competition Act. The key concerns included the concentration of buyer power, category management, exchange of information and long-term exclusive lease agreements.

According to a media release issued in January 2014 by the Competition Commission, the Commission concluded its investigation into exclusive lease agreements entered into between supermarkets and property developers, owners and managers of shopping malls (landlords).

The Commission found that this practice raises barriers to entry into grocery retailing. However, the investigation did not find sufficient evidence to meet the tests set out in the Competition Act for demonstrating anti-competitive effects.

The Commission remains concerned about the barriers to entry into the grocery retailing industry and the potential dampening effects of exclusive leases on competition.

SOUTH AFRICAN PROPERTY REVIEW

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2014/10/10 10:36 AM

from the CEO’s desk

OR F S IE LOBB U YO

26 September 2014

National Treasury Deputy Director- General: Tax Financial Sector Policy National Treasury Chief Director: Economic Tax Analysis

Dear Sirs OSALS MEDIUM TERM BUDGET POLICY STATEMENT: TAX PROP ther with the South African Revenue Service 1. On 11 September 2013, the National Treasury, toge ce (“SCOF”), the Draft Response Document (“SARS”) presented to the Standing Committee on Finan ct of, inter alia, The Draft Taxation Laws to the policy issues raised in the public comments in respe Amendment Bill, 2013 (“DTLAB 2013”). sentations and comments in respect of the 2. The Draft Response Document contained certain repre its affiliates and the purpose of this letter DTLAB 2013 which affected, amongst others, SAPOA and is therefore to bring these issues to your urgent attention. under the heading “Simplification of tax regime 3. The Draft Response Document states the following investments”: for collective investment schemes in non-property other profit-linked loans will no longer be “Comment: Interest incurred on linked debentures and is a REIT, controlled company or any other deductible under sections 8F and 8FA unless the entity effectively hinders uncontrolled property company that is wholly owned by a pension fund. Thisers. Also section 23P limits the deduction for entities that are partially owned by pensions fund or insur cent taxable income amount; certain few interest paid to 70 per cent controlling entities to a 40 per property funds remain subject to the anti-avoidance rule.

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SOUTH AFRICAN PROPERTY REVIEW

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2014/10/14 9:38 AM

from the CEO’s desk

ation to regulate unlisted REITs is introduced, Response: Accepted. As a transitional measure until legisl the application of sections 8F and 8FA has been delayed.”

Taxation Laws Amendment Act, 2013 (“TLA 4. Subsequent to the Draft Response Document, theNotice 37158 on 12 December 2013. Section 2013”) was promulgated in Government Gazette by the TLA 2013, stated, inter alia, the 8FA(3)(d) of the Income Tax Act, 1962 (“the Act”) as effected following: ct of: an instrument that constitutes a linked “This section does not apply to any interest owed in respe term insurer as defined in the Long-Term unit in a company where the linked unit is held by a longa short-term insurer as defined in the ShortInsurance Act, a pension fund, a provident fund, a REIT or Term Insurance Act, if: or short-term insurer holds at least 20 per i. The long-term insurer, pension fund, provident fund, REIT cent of the linked units in that company; or short-term insurer acquired those linked ii. he long-term insurer, pension fund, provident fund, REIT units before 1 January 2013; cent or more of the value of the assets of that iii. At the end of the previous year of assessment 80 per s prepared in accordance with the Companies company, reflected in the annual financial statement ctly attributable to immovable property.”

Act for the previous year of assessment, is directly or indire (Our emphasis) section 8FA of the Act, we would like to draw 5. Having regard to the Draft Response Document and two issues to your attention.

Unlisted REITs/ Unlisted Property Funds

Document that “until legislation to regulate 6. Despite the representation in the Draft Responseons 8F and 8FA has been delayed”, it is apparent unlisted REITs is introduced, the application of secti the exclusion does not extend to private from a reading of the current section 8FA(3)(d), that of their assets to immovable property, but companies, which can attribute more than 80 per cent titutes a linked unit in a company where which are not owned in respect of an instrument that cons long-term insurers, REITS, pension funds, more than 20 per cent of the linked units are held by provident funds or short-term insurers.

2013, the Unlisted Property Funds Working 7. Subsequent to the promulgation of the TLA ged with the National Treasury, SARS and Group (“Unlisted Property Funds WG””)) enga the essence of the letter is a request the SCOF, regarding such concerns. Nevertheless, Draft Response Document to unlisted to extend the transitional relief referred to in the or REITs, but by individuals (and small property funds not owned by pension funds, insurersrelief discriminates against such funds entities), on the basis that the current transitional such funds have a very long standing unfairly, and furthermore that despite the fact that

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2014/10/14 9:39 AM

from the CEO’s desk

FOR S E I LOBB U YO set to be punished, in particular their commercial and economic rationale behind them, look e earners who place extensive reliance on unsuspecting investors, who often include low-incom such funds to sustain their earnings. representations made by the Unlisted Property 8. Despite, the Draft Response Document, the various to discuss the issue, the Draft Taxation Laws Funds WG, as well as the request for several meetings public comment on 17 July 2014, and did Amendment Bill, 2014 (“DTLAB 2014”) was published for these concerns. At this point it therefore not contain any proposed amendments which addressed appears that the matter has come to a halt.

Transitional relief

erty funds partly owned by pension funds, 9. While the transitional relief granted to unlisted prop relief will terminate from 1 January 2016, insurers and REITs is welcomed, it is noted that such in section 8FA(3)(d) will be removed when it is envisaged that the current exclusion contained m not be extended, then not only will in its entirety. It is submitted that should the moratoriu s in a particularly adverse situation, but individually owned unlisted property funds find themselve pension funds. It is respectfully contended so too will funds partly owned by REITs, insurers and ely addressed. that this uncertainty in the industry needs to be immediat PURPOSE OF THIS LETTER

the Medium Term Budget Policy Statement 10. Having regard to the above, as well as the fact that ter of Finance, Mr Nhlanhla Nene on 22 (“MTBPS”) is due to be presented by the honourable Minisbe tabled before the National Assembly October 2014 and accordingly that the DTLAB 2014 willraised above are addressed in the DTLAB on or about then, we kindly request that the concerns SARS agree to urgent meetings with all 2014, failing which the MTBPS, failing which, Treasury andissues and moving the process forward. affected stakeholders for the purpose of discussing these appreciated.

11. Thank you for your assistance, in this regard, it is much

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Letters November.indd 4

2014/10/14 2:55 PM

Now you’re speaking my language While world investors speak of ploughing time and money into the new emerging frontier markets, one key ingredient that’s presumably overlooked is linguistics

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he developing world is a very loud place at the moment – the likes of Asia, Africa and Latin America are being heavily discussed as the current emerging markets to watch in light of a world economy that’s just beginning to find its feet again after the 2008/2009 global financial crisis.

In a world of surging globalisation, the planet seems a smaller place as crossborder trade and corporate international expansion have become the norm.

Learning and understanding the different cultures, customs and languages from around the world has become easier thanks to the internet.

In light of this, it has been reported that the language service industry has become a major factor in foreign trade and investment operations as well as corporate overseas expansion. Surpassing the translation and interpretation arena, the language service sector has become a key component in the global industrial chain.

According to Lu Jijian, Deputy Director General of the Department of Trade in Services and Commercial Services at the Ministry of Commerce, who spoke at the “Language: Key to Global Success” forum held in May 2014 in Beijing, “Countries that want to grow powerful have to energetically develop language services, which can speed up economic transformation, strengthen their capacity for cultural transmission, and facilitate the expansion of trade and investment”.

China is a massive market at the moment, despite its current economic slowdown. In this market, language and culture play a huge role, as China is home to almost 60 different ethnic groups.

According to statistics from the Translators Association of China, the number of companies that include language services in their business scope surged from 16 in 1980 to 37 197 in 2011.

It has been predicted that, by the end of 2015, the annual output value of language service providers will amount to ¥260-billion.

According to the 2012 Report on China’s

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Language Services Industry, more than twomillion people will be active in this trade, and the number of companies that include language services in their businesses will surpass 60 000.

With the rapid increase of Chinese investments and trade in Africa, great efforts have been made by governments, private companies and individuals across Africa to learn Chinese languages and understand the country’s culture. In South Africa, learning Mandarin has become a major trend, while the likes of Zimbabwe, Zambia and Kenya are all investing in learning Chinese languages.

China has embarked on establishing Confucius Institutes across the African continent. These non-profit schools funded by the Chinese government aim to promote the teaching and popularisation of Chinese languages in Africa.

While it’s widely known that education is key, learning foreign languages seems an even greater one – not only in terms of personal development but for economic prosperity too.

Candace King, Editor

Office +27 11 463 8071 | info@milestoneproperties.co.za

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Property Acquisition and Investments | Asset Management | Advisory Solutions | Facilities Management

from the Editor’s desk

We punch above our weight.

071401_SAPOA_Milestone_Punch_Crop.pdf

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2014/10/10 10:13 AM

2014/

contents

November 2014

PROPERTY SOUTH AFRICAN

Abland

REVIEW

November 2014

REVIEW

series

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monthly cou n Our

The WOR

South African Property Review

PROPERTY SOUTH AFRICAN

by-country focu try-

Property funds

WHO’S YOUR CHINA? Is Asia’s fortune cookie crumbling?

HYPROP On the up and up RETAIL PROPERTY TRENDS Keeping ahead of inflation

ON THE COVER The Rosebank Mall gets a new lease on life with Hyprop’s modernising renovation, making it more attractive to tenants and customers alike

PROPERTY FUNDS Rising prosperity

Abreal

EYE on AFRICA Kenya: still a market to watch

November 2014 Cover with Spine_NOV_SUBBED.indd 1

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2014/10/10 10:42 AM

From the CEO From the Editor’s desk News Education, training and development Legal update Property owners freed from liability of historical debts Town planning The future of the planning profession Councillors in conversation New members Welcome to SAPOA Theme leader The rise and rise of property funds Africa uncovered Kenya Eye on the world China Cover feature Hyprop: rising high Interview A journey of a thousand miles begins with a single step GBCSA Convention Africa on the green move Monaghan Farm Not your average eco-estate Statistics SAPOA retail trends report Port Elizabeth Golf Day What’s on: SAPOA’s upcoming national events 2014 Off the wall Hope floats FOR EDITORIAL ENQUIRIES email editorial@sapoa.org.za or managingeditor@sapoa.org.za.

Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 e: sales@sapoa.org.za Editor in Chief Neil Gopal Editorial Advisor Jane Padayachee Managing Editor Mark Pettipher Editor Candace King Copy Editor Ania Rokita Production Editor Dalene van Niekerk Designer Dirk Knoesen Sales Riëtte Stevens Finance Susan du Toit Contributors Martin Ferguson, Eugenia Makgabo, Denise Mhlanga, Lekgolo Mayatula, Tony Stokes Photographers Michael Glenister, Mark Pettipher

P R O P E R T Y

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DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA).

All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

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e: david@rsalitho.co.za

2014/10/13 12:45 PM

Integrated, Value-Added Solutions for Parking Systems

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With the latest features and functionality teamed with improved leadership and quality assurance, HUB is primed to provide the most comprehensive Parking Access and Revenue Control Systems in the industry.

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2014/10/10 10:48 AM

industry news

Meet Newtown Junction Modern architecture combines with Victorian aesthetics in the R1,3-billion Newtown Junction in the Johannesburg CBD, which has officially opened its doors to the public

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ttacq Limited and Atterbury Property Holdings’ ground-breaking R1,3-billion Newtown Junction mixed-use development in vibrant Newtown, Johannesburg CBD’s arts and entertainment precinct, has finally opened, marking a major milestone in one of the biggest private sector-led commercial property developments in the inner city.

The 85 000m² Newtown Junction development includes a 38 000m² shopping centre, 39 000m² of prime office space, a gym and basement parking for 2 400 cars.

Construction on another key component of the development – a 148-room City Lodge hotel that will span 8 000m² – began in September 2014 and will be completed at the end of 2015.

Attacq Limited and Atterbury Property Developments (APD) are 50/50 joint shareholders of the Newtown Junction development. However, through Attacq Limited’s 25% shareholding in APD, Attacq Limited has an effective 62,5% shareholding.

Adjacent to the M1 motorway, the landmark project is flanked by the Market Theatre and has strong support from the Johannesburg Property Company. Newtown Junction will be easily accessible via several key transport nodes that enter the node, including the Gautrain and the Rea Vaya rapid transit bus system. The development will also be home to the biggest taxi rank in Gauteng.

A major part of the office component has been taken up by Nedbank for its Newtown Campus, which is nearing completion and on track to achieve a 4-Star Green Star SA rating from the Green Building Council of South Africa.

On the shopping-centre side, leading companies and brands that have secured space at Newtown Junction include Pick n Pay, Ster-Kinekor, Truworths, the Foschini Group, Mr Price, Busboys & Poets, Life Grand Cafe and Shoprite. The gym will be operated

by Planet Fitness.

The aesthetic style and appeal of the development is its modern look amalgamated with an old Victorian industrial-era style. This architectural design decision was made in order for Newtown Junction to blend seamlessly with the rest of the precinct.

“We are proud to be investing in the Newtown Junction project, which is one of the most exciting developments in the Johannesburg CBD,” says Morne Wilken, Chief Executive Officer of Attacq Limited.

“In addition to the development being located in the vibrant and historic Newtown, it is part of an urban-regeneration effort with the city council.”

Newtown, like most of the Johannesburg inner city, was derelict, with many abandoned buildings left to decay. Over the past few years, the Newtown regeneration

An artist’s impression of part of the R1,3-billion Newtown Junction mixed-use development in the Johannesburg CBD, jointly owned by Attacq Limited and Atterbury Property Developments

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initiative has revived the precinct, which has now been established as a city improvement district with 24-hour security. In light of this, the Newtown Junction development has acted as a catalyst for its neighbours to regenerate.

Construction commenced in October 2012, and despite the recent constructionindustry strikes that caused delays, James Ehlers, Managing Director of APD, says the Newtown Junction shopping centre remained on track for its opening on 25 September 2014.

“The development is anchored by its retail component and will benefit from the offices as well as the leisure and lifestyle elements of the gym and hotel,” says Ehlers.

“It’s an enhanced and safe mixed-use node within Newtown.

“This project was originally meant to be just a shopping-centre development, but it changed pretty much at the onset into a ground-breaking mixed-use development in partnership with the city and the South African Heritage Resources Agency (SAHRA).”

The developers were conscious of the rich heritage value of the site and, with the support of SAHRA, have retained some of the old structures. For example, the 100-year-old Potato Shed structure was taken off-site when Newtown Junction’s multi-level basement was being constructed, and was later placed back in the exact same position.

“Although not confirmed, it is believed that Newtown Junction is the biggest private development in the Johannesburg CBD since the Carlton Centre was constructed in the 1970s,” says Wilken.

“The Johannesburg city council, being the owner of the land, has played a big role in this development, ensuring that it is completed successfully and that the economic targets of the city are met during the process.”

Newtown Junction’s development has, to date, created about 2 700 jobs during construction alone, of which 850 were jobs for local unemployed people. During the operational phase it is estimated that there will be about 4 800 people working at Newtown Junction. +27 (0)87 845 1111, Attacq.co.za

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2014/10/10 10:50 AM

industry news

Growing trend towards salvage and re-use of existing materials

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usinesses today are becoming increasingly aware of their responsibilities regarding going “green” – and the cost-related and associated benefits of doing so, says Theuns Eksteen, Project Manager at Excellerate Facilities Management.

“In our line of work, we are constantly involved in renovations and tenant installations carried out on behalf of a wide range of companies,” he says. “Such projects are an ongoing occurrence in the commercial

property market, as generally when a tenant relocates from a building and a new tenant moves in, the space is renovated.”

Eksteen says it’s interesting that the move towards conserving resources is prompting a new trend that is likely to become increasingly popular – namely to salvage and re-use old materials in renovation projects.

The principle of recycling was applied in a recent renovation project undertaken by Excellerate Facilities Management on behalf of Innovatec Africa,

Innovatec Africa’s renovated 3 100m² commercial property, situated at 150 Rivonia Road in Sandton

a training and technology solutions company that was relocating to a standalone commercial property of approximately 3 100m² on a prominent site at Marion Office Park, 150 Rivonia Road in Sandton.

“Situated in a prime location on the Gautrain route and highly accessible via various forms of transport, the building was dated and in need of modernisation,” says Eksteen. “The internal configuration also needed to be redesigned to suit the specific requirements of the new tenant, which included training facilities catering for 320 delegates per day and a 120-seater auditorium. We were commissioned to provide a turnkey solution, with the scope to project manage the renovation of an existing office environment and transform it into a worldclass training facility.”

Eksteen says it was rewarding to work with a client concerned about the environment. “As a result, we tried to salvage and re-use as much as possible from the site,” he says. “Some of the materials we managed to salvage included doors, door frames, ceiling tiles, blinds, glass panels and carpets. Most of the existing furniture was refurbished and stained to present a new, ‘out of the box’ look. With these savings taken into account, the physical renovations were completed at a cost of approximately R3-million.”

In addition to Excellerate Facilities Management’s involvement, other services provided by the Excellerate Property Services group of companies include Fresh Canteen, which manages the canteen and coffee shop; pest control by Eradico; cleaning and hygiene by Sterikleen and internal landscaping

by Greenmachine. +27 (0)11 911 8147, Excelfm.co.za

Redefine selected as a component of the Dow Jones Emerging Market Sustainability Index

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edefine Properties is pleased to announce that it has been selected as an index component of the Dow Jones Sustainability Indices (DJSI) in recognition of its corporate sustainability leadership in the property industry.

The index is composed of emerging market sustainability leaders as identified by sustainability investment specialists RobecoSAM through a corporate sustainability assessment. The index aims to represent the top 10% of the largest 800 companies in emerging markets based on longterm economic, environmental and social criteria. Redefine Properties is one of only five companies in the real estate

sector across a dozen emerging markets included in the index.

It joins 17 other South African companies in the index of 86 components from 37 industries in 12 countries, including the likes of Woolworths, Standard Bank, Nedbank, Netcare, Barloworld and AngloGold Ashanti. “We have come a long way in our sustainability journey and, more and more, we are putting our commitment to sustainability into action,” says Andrew Konig, Chief Executive Officer of Redefine Properties. “Our inclusion in the DJSI supports this and can give investors confidence that sustainability is a business imperative for Redefine.” He explains the index serves as

a benchmark for investors who integrate sustainability considerations into their portfolios. “This puts Redefine in a strong position to attract funds from capital owners who want to invest in sustainable businesses.”

Redefine Properties’ results outperformed the Emerging Markets Index’s real estate industry average overall, as well as for all three dimensions measured: economic, environmental and social. RobecoSAM considers climate change and energy efficiency of great importance for the real estate industry as buildings are responsible for about one-third of global greenhouse gas emissions.

Moreover, low-energy buildings

that use innovative materials reduce the impact of volatile energy prices on the cost of management and ownership of a property.

This results in high demand for green buildings. It also notes that, in addition to environmental issues, social responsibility and social integration are gaining importance in this industry. In the current volatile economic environment, community engagement and investments in areas surrounding properties are receiving increased attention to maintain asset values high and remain the preferred property owner for tenants. +27 (0)11 283 0202, Redefine.co.za

SOUTH AFRICAN PROPERTY REVIEW

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2014/10/10 10:53 AM

industry news

La Lucia Mall: fabulous at 40 with a fantastic future ahead

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n icon of modern shopping in KwaZuluNatal, La Lucia Mall celebrated 40 years of retail success in September 2014.

Originally built in 1974, the 36 389m² La Lucia Mall has grown and evolved with its community and retail trends to remain a relevant and exciting shopping attraction, frequented by more than six-million shoppers each year.

Now it is set to grow again in 2015, with a R12-million expansion by owners and managers Growthpoint Properties Limited.

“We were excited to celebrate La Lucia Mall’s 40th birthday, and especially on such a high note,” says Vanessa Blevins, Centre Manager of La Lucia Mall. “Our turnover grew by 10% in 2013 and is showing double-digit growth in 2014. We also continue to attract leading retailers.”

Chairman of Bentel Associates International Stephen Roberts has been with the company for 38 years, and has witnessed all of the growth of La Lucia

Mall since its first expansion. “It has been an exciting journey to be part of the growth of this mall and to have worked with the many different people who have contributed to its success,” he says. “The mall, like a woman, began life as young and pretty, and with the passing years has become more beautiful with each new expansion. It has now matured into a sophisticated lady worthy of respect and admiration.

“As architects, we can only provide the shell designed along well-planned principles.

It’s what happens to fill the shell and keep it running that makes it a success, and the Growthpoint management and team have done an excellent job in keeping the mall as a prime retail destination.”

Nazrana Premlall, Leasing Consultant for La Lucia Mall, recently secured the tenancies of leading retailers MRP Sport, Ackermans, Wimpy, Kauai Juice and Vida e Caffè, which have all opened their doors

at the mall. Poetry is also set to open at La Lucia Mall this spring – the third Cape Union Mart Group store to open in the shopping centre in recent months. The mall also recently opened Woolworths’ first stand-alone JT One store.

Furthermore, the centre’s 2015 expansion will deliver a larger Woolworths department store for customers. Woolworths is expanding by 800m².

The centre also continues to attract unique, specialist line stores such as The Tea Merchant, which will open its firstever Durban store at La Lucia Mall in March 2015.

AECOM is the project and cost manager for La Lucia Mall’s expansion. “La Lucia Mall is a Durban success story and an example of how effective retail nodes can become community centre points and add real value to the surrounding social, urban and residential landscape,” says AECOM Executive, Programme and Project Manager: Africa,

SACSC in talks with SAPS on keeping malls safe for shoppers and retailers

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he South African Council of Shopping Centres (SACSC) has announced that it will meet with the South African Police Service (SAPS) to unlock communication that can help malls to better assist the police in combating the organised criminal threat to shops, and ensure a safe environment for retailers and shoppers alike.

Amanda Stops, Chief Executive Officer of SACSC, confirmed the Council is facilitating a meeting between representatives from Gauteng shopping centres and the SAPS. “By sharing crime information, we will all benefit,” she says.

“On one hand, malls can be better informed about threats and increased risks at certain retail stores, which helps contribute to prevention.

On the other hand, we can also provide better information

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to the police, which increases their success. We want to understand how we can support the police to improve the capture and prosecution of perpetrators, and reinforce their investigations.

“Of course, preventing crime is the priority; this means proactively sharing information and analysis about crime, suspects and suspicious vehicles.”

The discussions with the SAPS, mall owners and managers will include these focus areas.

Stops says the SACSC will also welcome minimum standards or guidelines for CCTV as well as minimum standards for the calibre of guards training and certification, as both would support safety.

As in the recent spate of cellphone and computer store robberies, in many

instances the targets of crime are specific types of stores.

SACSC President Marna van der Walt says that, by working with retailers and the SAPS, malls can play a key role in crime prevention.

“Increased risk at one store in a mall has a knock-on effect,” she says. “Retailers need to work in tandem with shopping malls, security providers and the police to ensure we are all suitably vigilant at higher-risk times for each store. “This can only be achieved with excellent communication and a keen focus on crime prevention. We encourage working together to create a safe environment for the customer.”

The SACSC will also continue to work with the Consumer Goods Council

Marna van der Walt, President of the South African Council of Shopping Centres

of South Africa, Business Against Crime South Africa and the SAPS, using information sharing and best practices for the common goal of providing a safe environment for customers in shopping centres. +27 (0)10 003 0228, Sacsc.co.za

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An aerial view of La Lucia Mall in north Durban

Darroll McKeown. “At AECOM we are very proud of our long-standing successful relationship with La Lucia Mall, as well as of its dynamic management team.

The new Woolworths expansion project will bring shoppers even more choice and quality within this prestigious shopping centre.

“La Lucia Mall is unique in its offering, style and accessibility, which secures it as a bankable asset that will continue to evolve and stay relevant in the future – just as it has for the past 40 years. AECOM looks forward to a long and successful future with this iconic Durban centre as it leads the way in modern high end retail.”

As a flagship shopping centre in Growthpoint Properties Limited’s retail portfolio, La Lucia Mall makes a positive contribution to the performance of South Africa’s largest JSE-listed REIT. “Over the past 25 years, La Lucia Mall had to adjust and adapt to competition from newer and bigger shopping centres,” says Stephan le Roux, Divisional Director of Growthpoint Properties Limited’s Retail Portfolio. “The centre has established itself as a convenient, unique shopping destination through an ongoing process of change, ensuring that it remains relevant to its discerning market. We wish to thank our loyal customer base for their continued support.” +27 (0)31 562 8420, Laluciamall.co.za

International recognition for SA’s quantity surveying profession

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he South African Council for the Quantity Surveying Profession (SACQSP) and the Royal Institution of Chartered Surveyors (RICS) in London have committed to solidifying their relationship by signing a Mutual Recognition of Professional Competence.

The two organisations met to discuss their ongoing relationship earlier this year during a visit to South Africa

by Louise Brooke-Smith, Global President of RICS. “Both bodies play an important role in the built environment and share a common goal in setting and regulating professional standards in quantity surveying for the advancement of the profession,” says Brooke-Smith.

“Developing this partnership will not only facilitate future cooperation, it will also broaden opportunities for members of SACQSP and RICS internationally.”

The mutual recognition of qualifications means that registered members of SACQSP may become full members of RICS, while qualified quantity surveying members of RICS may be registered as professional quantity surveyors with SACQSP. In qualifying for RICS membership, those registered with the SACQSP in terms of the Quantity Surveying Profession Act of 2000 may become full members, following satisfactory completion of the mandatory ethics module assessment. RICS members wishing to register with SACQSP need to submit a detailed CV of practical quantity surveying experience and successfully conclude a professional interview.

RICS is recognised as the world’s leading qualification regarding professional standards in land, property

and construction, and attaining RICS status is the recognised mark of property professionalism.

The RICS qualification is recognised worldwide, enabling members to work across markets. SACQSP is a regulatory authority

mandated to provide for the registration of professionals, candidates and specified categories in the quantity surveying profession. +27 (0)11 467 2857, Rics.org; +27 (0)11 312 2560/1, Sacqsp.org.za

SACQSP President Professor Kathy Michell (left) with RICS Global President Louise Brooke-Smith SOUTH AFRICAN PROPERTY REVIEW

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Pivotal announces R1,5-billion deal in lead-up to JSE listing

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ivotal Property Fund recently announced a R1,5-billion acquisition from Standard Bank Properties, which includes the majority stake in Sandton’s landmark Alice Lane development, in the lead-up to its planned listing on the Johannesburg Stock Exchange (JSE).

“Pivotal has acquired strategic land and property assets from Standard Bank, which will be valued at more than R3,5-billion when fully developed,” says Pivotal Property Fund Managing Director Jackie van Niekerk. “This major deal moves us closer to our goal of listing on the JSE’s main board with a portfolio in excess of R9-billion. The acquisition expands our portfolio by more than 25 000m² of bulk and over 72 000m² of commercial space.”

Pivotal Property Fund already owns 30% of the multiple award-winning Alice Lane office development in Sandton’s central business district. The acquisition of the remaining 70% stake as part of the Standard Bank deal will see the fund becoming the sole owner of this P-grade office complex in South Africa’s top financial and corporate node. Phase 1 of Alice Lane was completed in September 2013 with a GRA of almost 19 000m² and blue-chip tenants including Marsh, Virgin Active, Bloomberg and Standard Bank. Phase 2 is scheduled for completion this month, bringing 16 000m² on-stream for financial services group Sanlam and insurance company Santam.

Phase 3 will follow in November 2016 with a total floor space of 35 000m², of which 22 000m² will be occupied by Bowman

Gilfillan. In addition to being certified as a 4-Star green building by the Green Building Council of South Africa, the Alice Lane development recently won the coveted SAPOA Innovative Excellence Award for commercial development.

The Virgin Active Alice Lane Health Club component of the development also won a special award for leisure and retail interior design at the South African Council of Shopping Centre’s annual Retail Development & Design Awards earlier this year.

Other high-profile properties acquired in the Standard Bank transaction include the 32 305m² Platinum Square shopping centre in Rustenburg; Lakeview Office Park in Roodepoort; Monte Circle Office

Park development land in Fourways; and the West End Office Park development in Centurion.

As Van Niekerk points out, Pivotal Property Fund’s investment criteria include well-located, A-grade commercial and retail properties assessed on a caseby-case basis. “The fund’s performance has delivered a consistent high growth rate to date, with a 45% increase in net asset value per share growth achieved in the 2014 fiscal year, with compounded annual net asset value growth of 24% since 2009,” she explains.

Pivotal Property Fund plans to list on the JSE towards the end of the year. +27 (0)11 510 9999, Pivotalfund.co.za LEFT Jackie van Niekerk, Managing Director of Pivotal Property Fund BELOW Phase 1 of the 65 000m² Alice Lane development in Sandton

Redefine takes up an investment in Emira

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edefine Properties has purchased approximately 11% of Emira Property Fund’s Participatory Interests (PIs).

The PIs were purchased from certain institutional investors in exchange for Redefine Properties’ shares. Redefine Properties has thus become one of Emira Property Fund’s larger PI holders.

“We welcome Redefine as a PI holder, and we are confident that it, like all our other PI holders, will be well rewarded through

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its investment in Emira,” says James Templeton, Chief Executive Officer of Emira Property Fund.

“Emira has shown a strong and sustained turnaround in the past three years and is well positioned for future performance. This has created a keener demand for Emira PIs from a variety of investors in the market, as is evidenced by the rise in Emira’s PI price of an effective 12,7% since results were released in mid-August 2014. Redefine has advised

us that it likes Emira’s prospects, and its investment does not constitute a hostile bid.”

Confirming its successful turnaround, Emira Property Fund met or exceeded all its targets for its financial year ended June 2014, most significant of which was growth in distributions per PI of 7,5%, but which also included growth through organic and acquisitive means, with acquisitions of R1,6-billion being concluded.

It also continued to advance its operational goals,

with vacancies declining to 4,5% and tenant retention rising to 80%. “We telegraphed our repositioning clearly to the market and will continue to implement our strategy to add value to all our investors,” says Templeton. “Emira will remain focused on excellent operational performance and growing our diversified portfolio of office, retail and industrial properties with high-quality assets.” +27 (0)11 028 3100, Emira.co.za

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industry news

Pepsi sets up HQ in OR Tambo aerotropolis precinct

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S soda giant Pepsi is setting up its South African headquarters for up to 300 employees within the OR Tambo aerotropolis precinct, close to Africa’s busiest airport, OR Tambo International.

From January next year, Pepsi – through its South African company Simba – will be headquartered at Krisp Properties’ stateof-the-art 28 000m² GLA Clearwater Office Park along the increasingly sought-after Atlas Road, adjacent to the land earmarked for the aerotropolis.

Pepsi has been located at Simba’s industrial premises in Isando until now.

Work on the R70-million hi-tech, custom-built AAAgrade headquarters began in November last year, with tenant installations having started in October this year

ahead of the company’s occupation in January 2015, says Krisp Properties Executive Director Jordan Mann.

“We have found a massive interest in high-end office space close to the airport as well as the aerotropolis precinct,” says Mann.

“There is immense national and international interest in the precinct and what is currently taking place here.”

Architect Francois Marais of Francois Marais Architects says the uniquely tailored design and construction of the building embraces new energy-efficiency legislation, rather than being restricted by it. “The building is designed as a green building, fully compliant with the Energy Efficiency Act,” Marais says.

While many developers cut back amid a tight economy, Krisp Properties is investing more than R500-million in expanding

Clearwater Office Park, which aims to compliment the OR Tambo aerotropolis.

“Clearwater Office Park has already attracted major South African and international companies, including the Michelin Africa headquarters, Discovery Health, Barloworld, Old Mutual, Absa and Imperial Air Cargo,” says Mann. “The addition of Pepsi underlines the strategic importance of this business node.”

So great is the demand that the office park is having to more than double in size. The future expansion, according to Mann, will more than double the size of the existing office park, taking it from 28 000m² GLA to 60 000m² GLA over the next five years.

The company has added an average of 5 000m² of commercial space per year at the office park.

When completed, there will be seven AAA-grade unique office park precincts.

“We see ourselves as the forerunners of what is happening at the OR Tambo aerotropolis,” says Mann. “It is a modern office park with high traffic volumes along Atlas Road and high visibility.”

Clearwater Office Park has been 90% let, Mann says, adding that the adjoining Clearwater Lifestyle Estate offers facilities such as tennis and squash courts, a gym, a spa and a restaurant, all of which are available to the commercial tenants. The company is leading the charge in developing “a new business node” along Atlas Road. “Our unique location enables us to position ourselves as a conduit for – and compliment to – business within the aerotropolis development,” says Mann. +27 (0)11 789 3334, Nuway.co.za

INNOVATIVE

XCELLENCE IN PROPERTY DEVELOPMENT 2 0 1 4

2 0 1 4

One of SAPOA’s A primary objectives is to define excellence in the property industry

s part of this objective, SAPOA Awards for Innovative Excellence in Property Development provide public recognition for top-quality design and functionality, and a benchmark for excellence in property Be part of this exclusive awards category entry in the most prestigious property awards programme in South Africa.

Cement your position as an industry leader and align your company with the industry’s peak leadership body in recognising excellence.

Position your company as a market leader: reap the benefits from positioning as a champion of South Africa’s property industry, innovation and excellence.

O N L I N E R E G I S T R AT I O N AT

Winning a SAPOA Innovative Excellence Award provides members of the project team with a multitude of benefits.

Don’t miss the opportunity to celebrate the success that results from determination and the resilience demonstrated by our industry in providing exceptional property.

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R9 500 (ex VAT) Jane Padayachee marketingmanager@sapoa.org.za or +27 (0)11 883 0679 16 FEBRUARY 2015

S a p o a c o n ve n t i o n . c o. z a / a w a rd s SOUTH AFRICAN PROPERTY REVIEW

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Fountainhead meets market guidance and improves its property portfolio

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ountainhead Property Trust has achieved distribution growth of 16,6% per Participatory Interest (PI) for its financial year to 31 August 2014, compared with the 11month period to 31 August 2013 and 6,85% on an annualised basis, delivering on its market guidance of 6,25 to 7,25%. The Trust achieved its stated prospects notwithstanding onceoff legal and advisory costs of R5,3-million incurred in the second half of its financial year, relating to Redefine Properties’ offer to acquire the remaining 34% of Fountainhead Property Trust it doesn’t own.

While the offer was approved by a substantial majority of Fountainhead Property Trust unitholders (71,3%), it fell short of the required 75% level. Excluding this extraordinary expense, Fountainhead Property Trust’s distribution growth for the financial year would have exceeded guidance at 7,7% per PI. Fountainhead Property Trust’s net asset value (NAV) increased by 7,2% per PI. Fountainhead Property Trust Chief Executive Officer Len van Niekerk points to the fund’s significant strategic advances as drivers of its solid performance for the year.

“We are pleased to report a solid set of results in this tough operating environment,” he says. “We advised the market of our strategy to reduce risk and improve the quality and sustainability of our earnings, and we’ve made meaningful progress on these objectives.”

Fountainhead Property Trust enhanced its portfolio by reinvesting in its core assets, establishing a disposal programme for smaller,

non-core assets that comprise less than five percent of its total portfolio, and acquiring larger, quality properties.

During the year, Fountainhead Property Trust commenced construction on a number of core assets, including a R318-million upgrade and expansion of Centurion Mall, and an additional 4 500m2 of lettable area with significantly improved access at Kenilworth Centre. The Trust is also investing R65-million to convert an office park in Bedfordview into a private educational facility on a long-term lease. “These projects enhance the status of our assets, extend their life cycle and protect their market position,” says Van Niekerk. “In addition, our recent acquisitions and disposals have been yield-enhancing while improving the overall quality of our portfolio.”

Fountainhead Property Trust made four tactical acquisitions for a total consideration of R778-million at a combined 8,5% yield.

This includes the R571-million Robor industrial facility in Elandsfontein, which has a 10-year triple net lease. The Trust also identified 27 properties for its disposal programme and, in its current financial year, has concluded, or is in the process of concluding, agreements of sale on 19 of the properties for a total value of R219-million at a combined yield of 9,87%.

“We’ve made considerable progress on our disposal programme and should conclude the majority of these disposals during the year,” says Van Niekerk. “The disposals represent a major step forward in Fountainhead’s strategy to focus on larger core assets.”

Its Southgate and Westgate disposals transferred shortly after year-end and, together with disposals agreed or in advanced negotiation, represent a total value of R1,2-billion at a combined yield of 7,8%. Vacancies, excluding strategic vacancies earmarked for development, and taking into account letting activity post-yearend, increased slightly from 7,1% to 7,5%.

Most of the increase can be ascribed to a few larger office and industrial vacancies, which all have plans in place to re-let.

Fountainhead Property Trust also restructured its funding, successfully reducing exposure to interest rate increases, lowering bank margins and increasing flexibility while containing its cost of debt in an environment of rising interest rates.

At year-end, 49% of the fund’s debt was fixed at an average rate of 8,1% for an average period of four-and-a-half years. The fixed position increases to 76%, fixed after taking forward-starting swaps into account, and up to 95% after taking a loan repayment and application of net proceeds from disposals and acquisitions into consideration.

Fountainhead Property Trust expects growth in distributions of five to six percent from its current portfolio for the 12 months to 31 August 2015. “We will continue to implement our strategy to acquire larger properties, improve our core assets through developments and dispose of smaller, riskier properties,” says Van Niekerk. +27 (0)11 283 0226, Fountainheadproperty.co.za

Sustainable architecture under the spotlight

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ustainable design and innovation in the built environment was showcased at the 2014 AfriSam South African Institute of Architects Award for Sustainable Architecture, held last month.

The prestigious bi-annual AfriSam SAIA Award for Sustainable Architecture was first introduced in 2009.

It recognises outstanding achievement in sustainable architecture, and creates public awareness and debate about architectural issues. There are two entry categories: one for built work and the other for

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works of social importance, including research. Entries are evaluated on a range of criteria including people upliftment and planet rejuvenation.

The Alexander Forbes Headquarters in Sandton, Johannesburg, designed

by Paragon Architects and Paragon Interface, took top honours in the Built Work Category. Commendations in this category went to a further four projects: UNISA Phase 2 in Parow, Cape Town, designed by Michele Sandilands Architects; the Seed Library in Alexandra Township, Johannesburg,

designed by Architects of Justice; Monaghan Farm near Lanseria, Gauteng, submitted by Claude Bailey Architecture & Design on behalf of Clewer Development Trust; and House Jones in Hurlingham, Johannesburg, designed by ERA Architects.

A second award, in the category of Works of Social Importance, went to Vukuzakhe by Koop Design in Durban, which examines urban development in the eThekwini municipality, while Collis & Associates received a commendation for research into concrete recycling in Cape Town.

Joining Sindile Ngonyama, President of SAIA, on the adjudicators panel for this year’s awards were Gita Goven, one of South Africa’s foremost sustainability thinkers; Llewellyn van Wyk, principal researcher in the built environment at the Council for Scientific and Industrial Research; Daniel Irurah, senior lecturer at Wits University; Philippa Tumubweinee, senior lecturer at the Department of Architecture at the University of the Free State; and AfriSam’s Vincent Blackbeard and Mike McDonald. +27 (0)11 670 5520, 4tmrw.co.za

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education, training and development

SAPOA members offered a discount on BOMA webinar online training

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Martin Ferguson, SAPOA’s HR, Education, Training and Development Manager, collaborates with thought leaders in South Africa’s property sector

he Building Owners and Managers Association (BOMA) International is a federation of 93 BOMA US associations and 17 international affiliates. Founded in 1907, BOMA International represents the owners and managers of all types of commercial property. Its mission is to advance a vibrant commercial real estate industry through advocacy, influence and knowledge.

BOMA International is a primary source of information on building management and operations, development, leasing, building operating costs, energy

consumption patterns, local and national building codes, legislation, occupancy statistics, technological developments and other industry trends.

BOMA International offers a variety of programmes, from traditional, classroom-based seminars to online seminars and webinars to suit every schedule and budget. BOMA International’s webinars specifically highlight issues that are timely and relevant for the commercial real estate profession.

As a result of SAPOA’s close collaboration with

BOMA International, Vice President: Marketing and Communications of BOMA International, Lisa Prats, has set up a discount code for members of SAPOA to get a 20% discount on the nonmember registration fee when registering to participate in any BOMA International webinar online. The discount code is “20SAPOA” and should be entered during the online registration process. SAPOA members are invited to visit the BOMA International website and look at the various seminars on the webinar portal.

Government and parastatals support SAPOA programmes

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or some time now, SAPOA has been lobbying and marketing its educational programmes to government and parastatals. The organisation believes that its programmes will bridge the gap between the public and private sectors, and create an understanding and increase knowledge on various matters.

The issues include what commercial property is about; who the role players are; which legislation is applicable to our industry; how to manage properties, facilities, finances and assets; as well as how to develop properties.

In light of this, SAPOA introduced the Immovable Asset Management Programme (IAMP), presented by Professor Dries Hauptfleish from the University of the Free State, two years ago. It has been structured around the Government Immovable Asset Management Act, No. 19 of 2007,

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to provide delegates with a thorough understanding of immovable asset management and its application in practice.

Nishi Naidoo, Senior Manager: Property Planning Services Department from the Department of Public Works, Roads and Transport in Nelspruit, Mpumalanga approached SAPOA to run an in-house IAMP programme for her department in which 40 delegates attended the programme in Middelburg from 25 to 29 August. The programme was practical and well received, with very good feedback.

SAPOA wishes to thank Ms Naidoo for the opportunity we were afforded to present this training programme to her and her team. Naidoo’s personal dedication to skills development in her department is highly appreciated, and we hope that other government departments will follow her example and use

her as a point of reference with regard to this programme, which is aimed mainly at the public sector.

Furthermore, the Department of Public Works, Roads and Transport in East London and Bisho, Eastern Cape has sent delegates on the following SAPOA educational programmes: ●● Introduction to Commercial Property Programme ●● Essential Commercial Property Programme ●● Property Valuation Programme Total Facilities Management Company (TFMC) has run an in-house SAPOA Property Management Programme at its offices in Centurion over two non-consecutive block weeks for 20 delegates.

Last year, TFMC sent five delegates on the SAPOA PDP in Cape Town. TFMC also supports other SAPOA public programmes and workshops on an ad-hoc basis.

SAPOA is one of Transnet Properties’ preferred education suppliers, running various in-house programmes and workshops with the company on a national basis. Transnet Properties has trained 441 staff members in the following programmes and workshops over the past few years: ●● Introduction to Commercial Property Programme ●● Essential Commercial Property Programme ●● Facilities Management Programme ●● Property Management Programme ●● Property Development Programme ●● Method of Measuring Floor Areas Transnet Properties also supports other SAPOA public programmes and workshops on an ad-hoc basis where there are not enough delegates to run an in-house programme. We thank Transnet Properties for the support.

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education, training and development

Is there a role for SAPOA to play in the southern Cape?

By Tony Stokes

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he SAPOA Human Resources Department has a training agreement with the Nelson Mandela Metropolitan University (NMMU). Together, they run the popular SAPOA commercial property programmes. NMMU has a satellite campus covering the George and southern Cape area, where SAPOA educational programmes are scheduled to take place.

Anthony “Tony” Stokes, a retired human resources executive and SAPOA’s former Education, Training and Development Committee member with extensive commercial property and training experience, has been approached to present SAPOA’s educational programmes at the NMMU in George. Stokes has come out of retirement and joined JHI Properties, one of SAPOA’s larger members, and is running the company’s property portfolio in George.

George is situated in the Eden District Municipality, which officially falls within the Western Cape province but is referred to by locals as the southern Cape.

The Eden District Municipality has a population of 574 265, with offices based in George.

The distances from George to the neighbouring SAPOA regional offices are 431km to Cape Town and 323km to Port Elizabeth. Despite this, the SAPOA Western Cape region is the official region for Eden District Municipality, and covers the following towns: George, Mossel Bay, Oudtshoorn, Wilderness, Knysna, Plettenberg Bay, Willowmore and Ladismith.

Stokes, being in commercial property, has not only been trying to get the commercial property stakeholders in the southern Cape area mobilised but has also tried to promote the establishment of a SAPOA chapter in the southern Cape.

SAPOA currently has more national members in the southern Cape area than individual members or professionals.

Stokes has established a relationship with the Eden District Municipality and George Municipality, and had a meeting with the South Cape Institute of Valuers, where he promoted SAPOA. It was concluded that the

Eden District Municipality needs a property movement based in George, and as the voice of commercial property in South Africa, it is believed that SAPOA should take a leading role.

Does this mean that SAPOA should consider opening a chapter in George?

Will this be viable for SAPOA as a non-profit organisation, given the low membership numbers in the area? What can be done to make the establishment of a chapter selfsustainable? Is a sub-committee of the Western Cape Regional Committee an option?

The answer is simple.

SAPOA is a membershipbased association, and we need more members in the area and the support of our national members who operate in the area. The area, especially George and Mossel Bay, has a number of offices and industrial areas, while retail is also booming there.

The area has many golf courses, golf estates, property owners, property investments – and a lot of property development. At the moment, SAPOA offers property education in the area but can expand the service offerings by introducing workshops on topics that affect the commercial property

industry, deal with legal and town planning matters; and host networking functions, golf days and gala dinners if the membership increases.

SAPOA should do more research and feasibility studies in the area, and embark on a membership recruitment drive. As soon as the area has sufficient membership that can make a chapter self-sustainable, then as a membershipbased association, SAPOA’s members in the area may decide to establish a chapter.

a problem for the sustainability of central George.

So what can be done? It is believed that, with a SAPOA forum of property developers and valuers, and collaboration with the community and the municipality, the property industry in George can be steered in a positive direction.

Some of these positives are: ●● Creating opportunities for central business development;

●● Restricting out-of-town migration, which will involve municipal intervention by offering attractive development initiatives; ●● Creating tourism attraction for central concentration; and ●● Creating a cosmopolitan restaurant focus to encourage tourists and local patrons.

This has been done in Wilderness in collaboration with the municipality and business entrepreneurs who own restaurants and now have great success in business turnover. As a result, Wilderness has become a popular eatery destination.

What is happening with the retail market in George?

By Tony Stokes

O

n 26 August, the South Cape Institute of Valuers had a meeting and invited me to make a presentation regarding the George retail market. In attendance was a representative from the George Municipality, and 10 valuers.

What is happening to the retail industry in George?

Since the development of the Garden Route Mall six years ago, much of the retail industry has migrated to the

southern part of George on the main route to the Wilderness.

This leaves a huge question: what will happen to the town of George? Many of the large property owners in central George are now under pressure to find tenants, and with the competitive rates offered, there is difficulty in finding willing business owners. With fears of the nucleus of business moving out of town and a steady decline on the economy, this does pose

Tony Stokes, retired human resources executive and SAPOA’s former Education Training and Development Committee member

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SHORT CERTIFICATE COURSES 2014

education, training and development

offered by SAPOA in association with Universities (IPMP) Intensive Project Management Programme (IPMP) NQF level 6: 12 credits

10 – 14 November Gauteng The IPMP is an intensive course which is held over five days. It has been offered successfully for many years by the University of the Free State in conjunction with SAPOA.The course is aimed at people in first and middle management positions in the built environment. The contentis suitable for both public servants and private sector practitioners. The IPMP has been structured to provide delegates with a thorough understanding of project management and the application thereof in practice.The objective of the course is to cover, and to introduce delegates to, the more innovative and novel practices in project management, making it a very practically applicable skill. On completion of the course, delegates should be able to utilise the relevant concepts when executing projects and contribute to future development of project management as a strategic tool in their enterprises.

Delegates evaluate this course very favourably.

Some comments from delegates: • Shared valuable information from legal proceedings.

• Very informative, well structured, encouraged class participation.

• Interaction with delegates, making one feel like part of the programme.

• Teaching manner is excellent, material is logical and well organised.

• Enthusiasm and love for construction is really inspirational. Learnt an enormous amount.

• All lecturers are excellent and understand the industry very well.

• Well organised, enriching and informative.

• More time for all!

• Wonderful, relevant reading material given to us.

• Every topic was interesting.

• Overall coverage of the course exceeded what I expected to get from such a course.

• Opened my eyes to the world of project management and will make it my future profession.

• Enjoyed it all on a whole. Will definitely recommend to my colleagues.

• Last, but not least, thank you for the informative, exciting and challenging way this course was presented.

It is not a course one can easily “gloss over” - and I suspect it was designed to make us work hard and think even harder and for that, we should be thankful! How else would we learn?

Information and Registration Tuition fees: SAPOA members: R9 500 Non-members: R10 500 Queries related to course content: Prof Dries Hauptfleisch 18

Course Coordinator: Vicki Fourie

SOUTH AFRICAN PROPERTY REVIEW

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SOUTH AFRICAN PROPERTY REVIEW

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legal update

Property owners freed from liability of historical debts Perregrine Joseph Mitchell V City Of Tshwane Metropolitan Municipality Autority Case No: 50816/14 (8 September 2014) Eugenia Makgabo is an Admitted Attorney of the High Court and Acting Legal Manager at SAPOA

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T

he acquiring of Rates Clearance Certificates has been a disconcerting issue for property owners. This is mainly due to the interpretation of Section 118 of the Municipal Systems Act 32 of 2000 hereinafter referred to as the Act by municipalities and the subsequent application thereof.

Section 118 of the Act essentially sets out the obligations of a new property owner pertaining to municipal debts which were incurred by a previous owner. The position has been that municipalities are demanding that the outstanding rates and taxes as well as other charges be paid by the new owner, failing which they are not prepared to provide the new owner with a Rates Clearance Certificate.

There has been justification for this practice which was confirmed in the City of Tshwane Metropolitan Municipality v Mathabathe case, where the court ruled that “Section 118(1) is, accordingly, a veto or embargo provision with a time limit, and that s 118(3), which provides that an amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property

is a security provision without a time limit.” This in effect was placing emphasis on the fact that municipalities retain their “rights” in respect of charges against properties, despite aspects such as the ownership of the property and the changing of hands that occurred.

Section 118 of the Act essentially sets out the obligations of a new property owner pertaining to municipal debts which were incurred by a previous owner. The position has been that municipalities are demanding that the outstanding rates and taxes as well as other charges be paid by the new owner, failing which they are not prepared to provide the new owner with a Rates Clearance Certificate However the wheels have subsequently turned and property owners’ rights have been reviewed and a new principle has been set in the case of Perrine Joseph Mitchell v City of Tshwane Metropolitan Authority.

In the abovementioned case Mr. Perregrine Joseph

Mitchell hereinafter referred to as the applicant, applied for a declaratory order stating that he or his successors in title are not liable for the historical municipal debts of previous owners. Further, that the City of Tshwane Metropolitan Municipal Authority hereinafter referred to as the respondent be ordered to open a municipal account in the name said of the applicant or his successor in title for the supply of municipal services to the said property.

Considerations • The applicant and respondent had two different interpretations of the meaning of Section 118(3) of the Municipal Systems Act and the consequences attached thereto • It is important to reiterate Section 118 (3) states the following: “An amount due for municipal services fees, surcharge on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.”

• The applicant contended that the aforementioned section afforded the

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legal update municipality a lien which is simply security over the property. However, that the respondent is not entitled to enforce this right against the applicant and his or successors in title pertaining to the liability for the payment of historical debts older than two years and which had been incurred by previous owners or occupiers of the property.

• The respondent contended that the security provision contained in Section 118(3) survives a transfer of the property from one owner to another and should be enforceable against the applicant and/or his successors in title.

Furthermore as long as the historical debts remain unpaid the respondent shall be entitled to refuse the supply of municipal services to the property.

Judgment • The judge considered three crucial questions when handing down judgment. Firstly whether the respondent’s right of security is still effective after transfer of the property into the name of the applicant. Secondly, the consideration of the question whether the applicant or his successor in title is liable for the payment of historical municipal debts. Finally, the issue with regard to the opening of a new account and the supply of municipal services to the new owner, whilst payment of the historical municipal debts are still outstanding.

• The judge held that to determine whether the right of security is still effective after transfer of the property, one has to ask what the nature of this right is.

• He stated that security in the form of a tacit statutory hypothec is a limited real right as opposed to a personal right, in the property of another that secures an obligation. Further, that there is no reason whilst the principal debt is still outstanding why transfer in the normal course of business should terminate this right.

• In terms of common law when mortgaged properties have been sold and delivered on the petition of creditors by order of a Judge, which is another way of referring to a sale in execution the hypothec is extinguished and the new owner will be granted a new title.

• The judge impressed upon the fact that a tacit statutory hypothec as a form of security is not in law the same concept as the principal obligation.

The one is a debt and the other security for payment of the debt.

• The judge held that after the sale in execution occurred the principal obligation in the form of historical debts older than two years continued to exist and not affected by loss of security.

Therefore the person that is the customer, occupier or owner who incurred these debts and failed to pay remains the debtor.

• The judge noted that neither the Municipal Systems Act or the • Standard Electricity By-law, Water Supply By-law, Credit Control By-law and the Credit Control and Debt Collection Policy contain a provision , expressly or by necessary implication, that the successor in title of property with regard to which there are historical

debts outstanding, are liable for these debts as co-debtor jointly and severally with the principal debtor, or that the municipality has the right to refuse the supply of municipal services to such a new owner.

• Further, that the right to discontinue the supply of municipal services relates to the customer, occupier or owner of the property when the debt was incurred. This means that the applicant or his successor in title not being a debtor or co-debtor with regard to historical debts is entitled to the supply of services. The respondent therefore has no right to refuse the supply of municipal services such as electricity, water, sanitation and waste removal to the applicant or his successor in title with regard to the property only because of an outstanding principal debt that is historical debts older than two years.

Further, that the right to discontinue the supply of municipal services relates to the customer, occupier or owner of the property when the debt was incurred. This means that the applicant or his successor in title not being a debtor or co-debtor with regard to historical debts is entitled to the supply of services

This judgement is certainly welcomed by property owners as it clarifies property owners’ rights pertaining to the payment of outstanding debts incurred by a previous owner. The judgement sets a precedent unless it is reversed. It will surely bring relief to property owners as the financial ramifications of paying the historical debts are indeed colossal.

SAPOA is engaging with the Department of Cooperative Governance and Traditional Affairs in order to ensure that property owners’ rights are protected and that the interpretation of Section 118 is correctly and justly applied.

SOUTH AFRICAN PROPERTY REVIEW

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legal update

REGISTER PROPERTY SAPOA PROPERTY

SOUTH AFRICAN

2015 - 2016

OW N E R S A S S O C I AT I O N - P U B L I CAT I O N S

Getting your brand in front of South Africa’s leading decision-makers June 2014

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REAL ESTATE and the South African economy Cover

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WORLD SERIES Global markets in the hot seat

TECTS CC

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Managers and admini strators

P.O.Box 157, CHAMELEON X1 Gauteng,2146 Postnet Suite, Melrose P.O.Box 4063, ARCHITECTS Arch, Tygervalley, t: +27 (0)11 The Western 033 6600 Cape, 7536 f: +27 (0)11 t: +27 (0)21 033 6600 949 2530 f: +27 (0)21 945 4183 BALSHAW & P.O.Box 12932, FOGARTI ARCHI TECTS CC CHRIS OWTRAM Eastern Cape, Centrahil, Port Elizabeth ARCHI P.O.Box 1926, 6006 , Pinegowrie, TECTURE t: +27 (0)41 Gauteng, 373 4340 2123 f: +27 (0)41 t: +27 (0)11 373 4324 022 6260 f: +27 (0)86 2:14:36 PM 648 8262 BATLE

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LUTION THE GREEN REVO erty Commercial prop set ers greening pione lity tone the sustainabi

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Directors: Edward Brooks: Michael Magne edward@activate. co.za r: michael Reon van @activate.co.za der Wiel: reon@activate.co .za

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P.O.Box 52685, NAL TECTS Saxonwold, Gauteng, P.O.Box 52604, INC 2132 Saxonwold, t: +27 (0)11 Gauteng, 326 5000 2132 f: +27 (0)11 t: +27 (0)11 326 5002 447 1344 f: +27 (0)11 447 1343 BENTEL ASSOC P.O.Box 87619, IATES INTERN ATIONAL CONSULT THREE Gauteng, 2041 Houghton, ARCHITECTS P.O.Box 71671, t: +27 (0)11 Eastern Cape, Central, Port Elizabeth 884 7111 , t: +27 (0)41 6006 585 0086 f: +27 (0)86 513 2278 BILD ARCHI P.O.Box 95664, TECTS (PTY) LTD CSAR 3 Waterkloof, Pretoria, P.O.Box 52673, Gauteng, 2132 Saxonwold, Roseban k, t: +27 (0)11 880 2466 f: +27 (0)11 447 3441

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DON’T MISS OUT on this well used and popular industry resource, where each year we accept a large number of listings and advertisements from professionals and service providers across the entire spectrum of property activities.

SAPOA aims to provide added value by offering the basic listings free of charge to all members and in this respect we hope that we are assisting you in your marketing endeavours to some extent.

We thank you for your support in previous years, and in an effort to improve the look and ease of usage we have redesigned the directory layout to a 4 column grid and made available certain entries which will stand out from the norm.

or prospe rity?

2014 - 2015

2014 - 2015 40 2014/10

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Register

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Repurposing industrial buildings

Modderfontein taking to the future

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Area review: Remotely on the rise

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Face to face: Katherine & West

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SAPOA members control the bulk of South Africa’s private-sector commercial land and building stock, and manage the majority of property funds listed on the JSE. Each member is a leading player and decision-maker in the commercial property arena – and they use the South African Property Review as an extension of the SAPOA website and information platforms. These members – company chairmen, CEOs and MDs – often control massive companies and their associated budgets. As true decisionmakers, some of the brightest and most-talented people in the sector occupy senior roles in the SAPOA member organisations.

For advertising opportunities and rates contact Riëtte Stevens c: +27 (0)71 877 5520 t: +27 (0)11 883 0679 f: +27 (0)86 216 9026 e: sales@sapoa.org.za 22

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planning and development

The future of the planning profession Because of its negative past, the planning profession in South Africa is in dire need of transformation – a feat that the public and private sectors can achieve via collaboration and innovative thinking

Lekgolo Mayatula is SAPOA’s Planning and Development Manager

T

he planning profession in South Africa was initiated during the early 20th century, with the apartheid regime identifying it as one of the cornerstone vocations that would be most suitable to implement the government’s objective of spatially segregating the South African population.

The segregation was implemented through legislation such as the Native Land Act of 1913, the Group Areas Act of 1950, the Population Restrictions Act of 1950, the Promotion of Bantu Self-Government Act of 1957, the Bantu Education Act of 1953, and the Reservation of Separate Amenities Act of 1953, among others.

These laws were passed by the government of the time to ensure economic, social and spatial segregation. The process led to town planning being mainly focused on land use management processes (which included the development and management of town planning schemes, the design of residential layouts, the zoning and usage of land, and so on).

Although the design and implementation of the land management process could have been perceived as a great success by the apartheid government, in reality it was unsustainable and destined to create overwhelming damage

to a country endowed with generous resources.

During the early 1990s, when South Africa was entering its democratic period, the town planning profession had lost most of its credibility, and had to take an introspective look at itself and take accountability for the discriminatory landscape created under its name.

In 2000, the inequitable landscape became even more evident with the creation of the new municipal boundaries, which translated into 863 municipalities being amalgamated to form 284 municipalities.

This process increased the size of municipalities and included areas that were previously not serviced or had very minimal services. It was evident to the planning profession that “operating as usual” was no longer an option and dramatic changes needed to take place.

The main challenge was to investigate and implement new processes and systems in order to ensure that the needs of the underprivileged were addressed, and to simultaneously competently manage the existing resources (natural, economical and social).

In 2002, the Planning Professions Act No. 36 of 2002 (PPA), was passed to govern the town planning profession.

The PPA stipulates that every town planner should be registered in one of the following categories: ●● Professional planner; ●● Candidate planner; or ●● Technical planner.

The PPA also makes provision for the establishment of the South African Council for Planners, which is tasked to regulate the planning profession.

It is therefore required that every planner is registered in accordance with the PPA. The changes that were initiated through the emergence of a democratic South Africa highlighted the fact that South Africa is a developmental state, and therefore the decisions implemented within the governance of the country should follow a much more consultative approach.

This meant that various stakeholders were required to participate and provide input on decisions that impact their daily lives. The necessity of the planning profession to deal with defining and manoeuvring within the elements of a developmental process was both challenging and overwhelming.

This became evident in 2005, when then-president Thabo Mbeki announced

that the Joint Initiative for Priority Skills Acquisition report indicated a crisis in the planning profession because of a decline of qualified and registered skilled members.

Although there has been a drive to address the shortage of skilled town planners, more work still needs to be done to increase the numbers within the profession. This requires concerted effort from educational institutions, government and various stakeholder (especially in the property sector).

The existing global and local challenges that face the property industry are evident, and there is a need for innovative thinking to find solutions that will have a positive long-term effect on transforming the built environment for the benefit of all stakeholders.

The evolution of the planning profession is one that brings great hope to the property industry and to South Africa. Through continued exposure, dialogue and interaction with various professionals, government institutions, community organisations, educational institutions and the private sector, the dream of a shared vision for a transformed South Africa can be realised.

Highlights in the town planning scene • The online World Town Planning Day Conference will be held from 5 to 7 November 2014. The theme for this year is “Equality in the City: Making Cities Socially Cohesive”. For more information, visit Planningtheworld.net.

• The South African Cities Network has released two publications: How To Build Transit-Oriented Cities: Exploring Possibilities and From Housing To Human Settlements: Evolving Perspectives. For more information, visit Sacitiesnetwork.co.za.

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SAPOA National Councillors

Councillors

in conversation

We speak to our National Councillors about their role at SAPOA and their future goals at the organisation

By Candace King

companies I worked for. In 2012, I was nominated as Chairperson for the Committee I currently serve but had to take maternity leave before the end of my term.

Q

Q

Q

Q Q

Who is Nomvula Pooe?

I currently work for Growthpoint Properties as a Learning and Development Manager. My role at SAPOA is that of Chair of the HR: Education, Training and Development Committee.

When did you join SAPOA? What are your thoughts about the organisation?

I’ve been a member of SAPOA since 2002 through the property

What have been your greatest achievements with SAPOA? The establishment of the Student Onboarding Programme that we implemented in 2012 has been a great achievement.

The programme was specifically targeted at students pursuing property-related qualifications.

What are the current industry challenges and how can these be solved?

How can SAPOA assist?

When did you join SAPOA? What are your thoughts about the organisation?

Q

Who is Refqah Fataar Ho-Yee? I’m an attorney and conveyancer living and working in Cape Town. I’m a partner at Smith Tabata Buchanan Boyes (STBB), a law firm specialising in all aspects of property law with a national footprint of 10 branches. I am the Regional Chairperson of SAPOA Western Cape. Prior to this role I served as Vice Chair and as Councillor of SAPOA Western Cape.

24

When I merged my practice with STBB in 2008 I automatically became a member of SAPOA because of STBB’s membership.

SAPOA plays a necessary role in promoting and protecting its members’ interests in commercial property. It has always been a valued source of information.

Being involved with the Regional Council, I’m very aware of the staggering amount of legislation SAPOA addresses daily on behalf of members.

Q

What have been your greatest achievements with SAPOA? SAPOA Western Cape has played a satisfying role in: l Ensuring that a number of Western Cape students have secured SAPOA bursaries; l Engaging with the City of Cape Town and the province

It is important to understand whether the current educational courses provided by SAPOA (with educational institutions) add value in addressing current skills shortages in the property industry. However, in order to understand that, there needs to be an assessment of what the needs of the industry are – more specifically, what the current labour shortages are and what the projected labour shortages are. Out of that, we should be able to assess whether the supply of skills coming from colleges, universities and other training institutions is appropriate in addressing the needs as identified. on behalf of members, and building necessary relationships to understand the challenges on both sides; l Hosting informative breakfast talks this year, showcasing the various precincts in the Western Cape. This series will continue into 2015; and l Pulling off another successful Western Cape Golf Day, despite sponsorship challenges.

Q

What are the current industry challenges and how can these be solved?

How can SAPOA assist?

There is a large amount of legislation, draft legislation and procedure that members confront in respect of applications to city and province levels.

SAPOA and SAPOA Western Cape are actively involved in highlighting member concerns, understanding the process from the perspective of officials and

SAPOA is currently working on a survey that aims to address this problem (among others).

Q

What are your future plans with SAPOA? What would you like to achieve at the organisation?

After my term of office, I plan to participate in the Committee by continuously provoking discussions around return on investment training for our member organisations. I’m also interested in understanding whether the training SAPOA contributes adds value towards the transformation of previously disadvantaged groups in member organisations.

speaking out constructively.

Sponsorship of our networking events and dinners is a regional challenge. Because of a lack of sponsorship, much-anticipated networking events and gala dinners have been missed.

We have recently secured sponsorship for one networking function later this year.

Q

What are your future plans with SAPOA? What would you like to achieve at the organisation?

I hope to see membership growth, especially from young professionals entering the industry. I’m thrilled by SAPOA President Amelia Beattie’s challenge to industry to grow the SAPOA Bursary Trust. I hope that the relationships being built with the city and province become stronger, and that more active engagement takes place more often.

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new members

Welcome to SAPOA We welcome the latest members to join the organisation, showcasing who they are, what they do and why they joined

By Candace King

Boleng Mechanical Engineering Services

B

oleng Mechanical Engineering Services (BMES) is a Level 3 BBBEE company that installs, services and replaces heating, ventilation, air conditioning and refrigeration (HVAC/R) systems for companies throughout South Africa. With a solid experience in the design, supply, installation, commission and maintenance of HVAC/R systems, the company

Lesego Kenosi, Managing Director of BMES

has invested in state-of-the-art technology, and provides ongoing training to its key personnel to keep abreast with new technology, systems, air quality and energy-efficiency solutions to create a cooling breeze for its clients’ properties at a fraction of the price.

“The way we live, work, shop, do business and spend our leisure time has positively influenced the property industry,” says Lesego Kenosi, Managing Director of BMES. “In light of this, successful property developers place a greater focus on human comfort than on the structural and architectural design, as well as the aesthetic and artistic references of their property.”

He notes that property developers today are more concerned with a positive, humane environment through the use of proper ventilation systems, temperature controls, heating units and moisture preventative controls – the same environment that BMES strives to create for its clients’ properties on a daily basis.

“To continuously improve our business, BMES has joined SAPOA, a reputable property owners association that is instrumental in shaping the property industry, says Kenosi.

“One of SAPOA’s core functions is to encourage its members to exchange ideas, knowledge, advice and expertise through the use of their different platforms, which has benefited BMES. “I first learnt about SAPOA through an industry colleague more than eight years ago and have since followed the association’s progress, gaining valuable knowledge through its in-depth analysis of the property industry. This knowledge has added significant value to BMES’s service offering, helping the company to create solutions that are suitable and tailor-made for its clients.” +27 (0)10 210 7005, Bmes.co.za

by Renprop (Pty) Ltd or Space Developments, but also for external developers. It manages all types of other sales, and provides an integrated, end-to-end, one-stop rental management service.

Renprop Property Management is a specialised division managing commercial and residential developments, performing

administrative and facilities management functions with a high level of personal service.

Urban Housing is a specialised marketer and administrator of sales of new houses in the lower end of the residential property market throughout South Africa.

Renprop (Pty) Ltd’s Directors Renecle and Anthony Parlabean play a large role in ensuring its vision to be the property company of choice, to remain a material player in the marketplace, and to adhere to its core values, which guide the company in its daily activities.

“We aim to stay top of mind at all times,” says Renecle. “Diversity, distinction and solutionsdriven – this is the Renprop difference.” +27 (0)11 463 6161, Renprop.co.za

Renprop (Pty) Ltd

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enprop (Pty) Ltd specialises in all facets of the property industry, providing an integrated and unique approach to divisionalised diversity. Renprop (Pty) Ltd boasts several divisions, including commercial, residential, property management and urban housing, thus offering its clients opportunities that they perhaps previously never thought of. “We are what we do for the benefit of our people, our partners and our clients,” says Chris Renecle, Managing Director of Renprop (Pty) Ltd. Renprop Commercial property brokers provide the widest spectrum of brokering services designed to maximise the value of any real estate asset. On behalf of the company, their clients or any potential property investment interest, the property brokers focus on lease, sale, acquisition, disposal and development markets.

Renprop Residential is responsible for the marketing and sales of new residential and multi-unit lifestyle units developed not only

Chris Renecle, Managing Director of Renprop (Pty) Ltd SOUTH AFRICAN PROPERTY REVIEW

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The rise and rise of property funds With continued incremental growth and robust performance on its side, the much-talkedabout world of property funds remains optimistic – with a pinch of prudence

By Candace King

James Templeton, Chief Executive Officer of Emira Property Fund

Sisa Ngebulana, Chief Executive Officer of Rebosis Property Fund Limited as well as the founder and Executive Chairman of Billion Group

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ust over a decade ago, property as an asset class was pretty much ignored. Having waited in the wings for such a long time, property funds have now come to the fore, with listed property in particular having garnered great attention as a highly attractive sector to operate and invest in.

In 2002, listed property made up less than one percent of the total market capitalisation of the Johannesburg Stock Exchange (JSE).

The sector now comprises about three percent of the All Share Index. The listed property sector has been growing rapidly in recent years, with the market capitalisation of the sector growing from R80-billion in 2009 to R260billion by June this year. Five years ago, there were 10 to 15 listed funds, while in September 2014 there were approximately 30.

On a year-to-date basis, since the beginning of 2014, listed property prices are up by approximately 15,6% compared to the All Share Index, which is up by 11,3% and the All Bond Index, which has returned a 6,09% (allin return) to date. Property investors have once again been handsomely rewarded on a year-to-date basis. These numbers exclude dividends and interest distributions for the All Share and Property Stocks.

Property funds have been reporting good to excellent growth in spite of the economic downturn. This is the result of a few factors, including intentional dollar-based investments by some funds, income-enhancing acquisitions, relatively low cost of funding, and organic income growth.

Property generally lags the general economy in being impacted by either positive or negative movements, and for this reason we have not seen much impact on the sector yet.

Furthermore, most funds hold well-diversified portfolios, geographically and sectorally, which further provides a cushion. In addition, lease agreements tend to be signed for medium- to long-term periods, thus locking in tenants regardless of a change in their short-term circumstances.

“At the end of the day, an investment class is popular because it continues to perform well,” says James Templeton, Chief Executive Officer of Emira Property Fund. “The South African listed property sector has performed well because we have low interest rates

globally and in South Africa. Property and listed property particularly are closely linked to the levels of long-term interest rates.”

“The sector experienced a significant number of listings over the past three years,” says Sisa Ngebulana, Chief Executive Officer of Rebosis Property Fund Limited and the founder and Executive Chairman of Billion Group. “The pendulum has somewhat swung in the opposite direction and we have seen some consolidation in the market, which we expect will continue. The sector has once again outperformed and to date has reflected an average growth of eight percent despite tough trading conditions.”

In light of the listed property sector’s continuous outperformance of the other asset classes on the JSE, Chief Executive Officer of Dipula Income Fund Izak Petersen notes that the main reason for this is that the sector has experienced unprecedented asset growth as more companies have listed and have aggressively acquired assets from a very low base. He adds that fund managers have been allocating more money towards listed property, thus contributing to good liquidity and demand for property stocks.

Optimism coupled with caution Tyrone Govender, Chief Executive Officer of Freedom Property Fund, says the listed property market has grown significantly over the past few years and continues to show evidence of further listing activity. However, it’s not all smooth sailing for the star asset class.

“Property has always been a stable investment in the medium-to-long term, and is popular among investors who are absolutely concerned about capital preservation,” he says. “However, it must be noted that in the current economic environment, and specifically a rising interest rate cycle, listing activity has significantly slowed down in recent months. It is anticipated that this trend will continue in the medium term.

“We have reached the end of a cycle of significantly lower interest rates, and it is evident that we are currently in an environment of a rising interest rate cycle.

Listed property funds that have significant gearing will be adversely affected. It is also anticipated that vacancy levels within certain

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sectors are rising and will continue to do so, placing further pressure on earnings potential. A further trend is that local property companies are looking internationally for opportunities to grow. A movement towards consolidation within the sector has also gained momentum.”

Petersen points out that property is not operating in isolation. As a result, we should expect pressure on capital and income growth at some stage as a result of tenants experiencing difficult times. It is therefore important to select funds with quality tenants and well diversified portfolios. He adds that Dipula Income Fund does not expect major adverse outcomes in the short term from the current economic downturn. On the contrary, Ngebulana believes that the impact of the economic downturn has not been that great on the property sector overall, with funds still achieving high distribution growth on average.

“However, the office sector remains under pressure, and retail has to some extent shown the effects of a lacklustre economy,” says Ngebulana. “We see an opportunity for specialist, niche funds to hedge against or extract value from these macroeconomic circumstances.”

The biggest impact of the slowdown in economic growth (current forecasts are for growth of approximately 1,5% in 2014) has been on the rental growth from commercial property, with a secondary impact on vacancies. There is nominal rental growth in rentals across all three sectors; however, in certain cases this is not keeping up with the escalations in the lease agreements with tenants.

Although vacancies have remained very low in retail and industrial properties – and therefore these sectors have not been that badly hit – vacancies in offices are in excess of 11%.

On top of their game The exceptional growth and positive performance of South Africa’s leading property funds are testimony to the sector’s strength and appeal.

With a geographically and sectorally welldiversified portfolio of properties, Dipula Income Fund currently owns about 176 properties in all nine provinces of South Africa.

Dipula Income Fund predominantly owns retail assets, at about 60%, with industrial and office buildings making up the difference in almost equal proportion in terms of rentable space.

“Our fund has produced sectorcomparable income growth while significantly growing assets from R2-billion at listing to more than R4-billion currently,” says Petersen.

“In addition to this, our market cap has ranged between R3-billion and R2,7-billion. Post implementing all transactions, Dipula will reach the R5-billion mark in terms of asset valuation. This is a remarkable achievement in just three years, considering the immense competition in the sector.”

In terms of Emira Property Fund, the top 10 properties in its portfolio comprise a diversified mix of retail, office and industrial properties. The fund has purchased 12 new properties in the last 12 months with a collective value of R1,6-billion, and has also been selling smaller, non-core properties – the fund has sold 13 properties with a total value of R501-million in the past 12 months.

Izak Petersen, Chief Executive Officer of Dipula Income Fund

Tyrone Govender, Chief Executive Officer of Freedom Property Fund SOUTH AFRICAN PROPERTY REVIEW

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theme leader “We have had a very good year, with distributions per share rising by 7,5% in the 12 months to June 2014 and net asset value growing by 9,2% to 1448 cents,” says Templeton. “In the past three years, Emira has preferred to use proceeds on sales of properties to repurchase our participatory interests (PIs) as they have been offering value, and this has been the best use of our capital base for our investors, with the benefit of enhancing distribution growth. Having said that, with Emira’s improved distribution growth prospects and the resultant rise in our PI price, we issued R310-million worth of PIs in July this year to fund a portion of the recent acquisitions.”

Rebosis Property Fund Limited’s portfolio is somewhat unique in that it has balanced exposure to high-growth, early-stage retail centres as well as defensive, large- and single-tenanted offices in nodes attractive to government. Its portfolio consists of 54% retail, 44% office and two percent industrial properties.

“Our fund is performing in line with expectations and as communicated to the market,” says Ngebulana. “Rebosis intends to continue to act on yield-enhancing, strategic consolidation and other pipeline opportunities as well as refurbishments at some of its existing assets. Our recent acquisition of a significant interest in Ascension Property Fund and the subsequent assimilation of their asset management team into ours is a good example.”

Freedom Property Fund comprises a variety of projects ranging from currentyielding properties and commercial development properties to residential rental properties and residential sale properties.

The company will continue assessing opportunities in respect of acquiring new properties that comply with the fund’s investment criteria. Freedom Property Fund listed on the main board of the JSE under Real Estate Holding and Developments in June 2014. Liquidity of the share has been relatively low, which is to be expected in light of the recent listing and nature of the fund.

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“Subsequent to listing, we have embarked on an extensive campaign with respect to marketing and investor relations,” says Govender. “We will continue with this approach in the coming months.”

The attraction: listing, REITs and Africa Currently, the property fund arena is being influenced by various trends, including the benefits of listing as well as the implementation of the REITs structure. Another trend is the entry into the African market.

“Listing is beneficial because it gives us access to a wide pool of investors and funders to facilitate well-priced capital,” says Petersen.

“The profile of the company is elevated and this can open more opportunities for growth.

It also provides our investors with relatively more liquidity compared to physical property, which is quite illiquid. Investors also have the benefit of professional management and transparency as the JSE is very strict on reporting and corporate governance.

Investors get to invest in a vehicle with a regulated tax framework, thus minimising their tax risks.”

Being listed, notes Templeton, offers a property fund the ability to raise equity from a wider shareholder base, and therefore not be reliant on any one shareholder to grow the business. He adds that listed property shares also currently trade at a premium to net asset value, implying that listed funds have the ability to add value for their investors through issuing equity for growth in the portfolio.

“The JSE is one of the best regulated exchanges in the world,” says Ngebulana.

“According to the JSE, listing compels the company to improve its reporting, increases liquidity for investors and allows shareholders to realise the value of their investments through a public trading platform. All this transparency leads to alternative options when raising capital – instead of only debt, listed property funds can issue equity, debt instruments or convertible instruments.

These options allow listed companies to compete for an overall lower cost of capital.”

On the topic of REITs, Petersen says they’re a brilliant investment vehicle for investors looking to invest in professionally managed, diversified and liquid rental enterprises with a well-defined tax framework.

“REITs allow investors access to rental income through an efficient and transparent structure without the hassle of managing buildings and tenants as would be the case if one invested in direct property,” he says. “From a tax point of view, investors are taxed as though they were invested in direct property thanks to the flow-through of rental income to the ultimate investor. Investors are also spoiled for choice because they have a wide selection of REITs in South Africa, which – thanks to liquidity – investors can buy and sell as they see fit and use to achieve diversification within the sector and for their broader portfolio.”

“In my opinion, we have had REITs – or their equivalent – in South Africa for years, in the form of PLSs and PUTs,” says Templeton.

“However, what the recent legislation has done is standardise the structure for local funds and introduce familiar structures for foreign investors. It has been very positive for the local listed property sector.”

Ngebulana says that listed property companies internationally are generally set up as REITs. This has become the convention in which investors analyse and value the market. For local companies, it means we can be assessed in the same way, allowing better access to international capital.

Freedom Property Fund is positioned as a capital growth fund and not a REIT, notes Govender, who has a different opinion of REITs. “REITs in general are facing an increasingly challenging time in the immediate future,” he says. “Their share prices are significantly dependant on their ability to grow their distributable income year-on-year. In the current economic environment this will prove extremely difficult.

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Property is a great addition to a portfolio because it is sensible for any prudent investor to diversify asset classes and have property in the mix. South African property funds are well managed and, even with some expected headwinds ahead, should still perform well in relation to other sectors

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“A further consideration for the value of the share is related to the capital growth component, which is linked to the income growth. Capital growth in existing REITs is extremely limited because property values and fundamentals are fairly in line with international property fundamentals.” He adds that income growth in REITs is limited and pedestrian because escalations on leases are limited to single-digit increases of about eight percent. Furthermore, expenses relating to properties are subject to double-digit increases of approximately 10 to 12%.

“A key component has been the recent labour increases, electricity increases and rising ancillary expenses,” Govender says. “The above factors therefore contribute towards negative income growth. Combined with pedestrian capital growth, this points to a very challenging next few years for REITs.” On the strapping trend of Africa, the continent appears attractive for property fund entries and investment. Africa is undoubtedly a compelling proposition because of its growth path, which is moving at a much faster pace than South Africa. Most African countries are welcoming foreign investment, and there is not much overcrowding relative to back home and other overseas destinations, with margins appearing better than South Africa.

“The listed property sector’s move into the rest of Africa is quite recent; only time will tell how successful it will be,” says Petersen. “Africa is not without risks – you have to be prepared as you are likely to encounter challenges and have to navigate long lead times, political volatility, logistical challenges, and (often) land tenure and funding difficulties.”

“I believe it’s important to assess the potential returns against the risks in any investment outside of South Africa,” says Templeton. “I.e., the returns need to be better as there are greater risks given that you are operating outside of your core home market.”

Ngebulana says there is a limited number of funds invested in Africa, although it is becoming a focus for some funds, depending on their risk parameters (such as whether they will take on development risk). The repatriation of dividends and complying with various tax regimes are other barriers to entry.

“Certain property funds have ventured into Africa and been successful,” says Govender. “However, these have been in the minority. The rest of Africa proves to be a very challenging environment for the listed and regulated property funds established in South Africa. Some of the challenges relate to harsh operating conditions and hinge on the various countries’ legislation relating to full title of land and property (or the lack thereof ).”

The future of property funds Looking ahead, Ngebulana says analysts are optimistic about the sector, with STANLIB forecasting income growth to be about 8,5% over the next 12 months.

“Property is a great addition to a portfolio for several reasons, but also because it is sensible for any prudent investor to diversify asset classes and have property in the mix,” says Petersen. “South African property funds are well managed and, even with some expected headwinds ahead, should still perform well relative to other sectors. I foresee inflation beating growth in the next three years.”

“Barring any unexpected shocks to the system from global interest rates, South African economic growth, and specific tenant failures, we are positive about the industry and Emira’s prospects, and expect real growth in distributions from Emira for the next couple of years,” says Templeton.

Govender says property has outperformed and will continue to outperform most asset classes over the long term. It is with this in mind that these investments will continue to be popular in the foreseeable future.

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es: i r e eyerion a s Africa c hly ntry t f n e A o ou Th our m by-c try focus n cou

Africa uncovered Kenya

While its growth has slowed and its performance teeters, Kenya continues to be seen as a ‘market to watch’, as East Africa’s star country remains optimistic about its future

Population in thousands (2009)

100-520 520-750 750-970 970-3 200

By Candace King

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Kenya at a glance ▼ Population 44,35-million (2013) ▼ Major cities Nairobi (3,1-million), Mombasa (0,9-million), Kisumu (0,9-million) ▼ Currency Kenyan Shilling (KES) ▼ Total area 582 650km² ▼ GDP growth 5,7% (2013) ▼ Key industries Agriculture, horticulture, tea and coffee, tourism, oil refining

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part from being hailed as the cradle of humanity because of its rich prehistoric heritage, Kenya is regarded as East Africa’s most-prized country based on its growth, performance and solidity.

Located on the equator on Africa’s east coast, Kenya is known for its natural beauty, its vast array of wildlife, and its ethnic and cultural diversity. While the country experiences relative economic and political stability, its ruling history has been tumultuous, with various leaders and parties taking the reins, and resulting political violence.

After getting independence from Britain in 1963, Kenya’s politics oscillated between single-ruling parties to multi-party politics.

Political rule in Kenya has often been accompanied by unrest and inter-ethnic violence. Corruption has also plagued Kenyan politics over the years.

The 2013 elections were peaceful, with Uhuru Kenyatta, the son of independence leader Jomo Kenyatta, taking the presidency. However, President Kenyatta has been accused of organising ethnic massacres after the 2007 elections, in which 1 200 people were killed.

Kenyan President Uhuru Kenyatta

In 2011, Kenya's military entered Somalia in an effort to repress the threat of the Islamist militant Al-Shabaab movement – which then retaliated, resulting in several attacks in Kenya, including the startling 2013 attack on the up-market Westgate Shopping Mall in Kenya’s capital and largest city of Nairobi.

Apart from corruption and terrorism, Kenya faces several pressing issues, including high unemployment (sitting at about 40%), crime, poverty and frequent droughts, which place Kenya’s prime sectors of economic importance under great risk.

In terms of Kenya’s growth, the economy has been recovering over the past few years. As east Africa’s biggest economy, it has grown by more than four percent over the last three years, according to data from the World Bank. Furthermore, Kenya’s medium-term economic prospects are projected to improve to about six percent GDP. While there have been challenges in terms of financing the new devolved system of governance, Kenya has maintained a stable macroeconomic environment since the 2013 elections. And although it underwent dramatic currency depreciation and rapid inflation in 2011, Kenya’s economy experienced stability for both indicators in 2012 and 2013, dropping to a single digit. This is expected to continue in 2014.

Kenya’s key export markets include tea (18%), freshly cut flowers (10%), refined petroleum oil (4,7%) and unroasted coffee (4,6%). In June 2014, Kenya’s tea production was recorded at 31,9-million kilograms.

The country also relies on international financial lenders whose funds remain crucial for economic growth and development.

Kenya’s GDP was estimated to be 25% larger after the authorities changed the base calculation year to 2009 from 2001, resulting in a GDP now worth R593-billion, launching the east African powerhouse into the continent’s top 10 economies.

Based on the figures recently released by the Kenya National Bureau of Statistics, Kenya’s economy has overtaken the likes of Ghana and Tunisia, and is now the ninthlargest economy in Africa.

The agricultural, manufacturing and real estate sectors were the greatest drivers of change in economic figures,

contributing 19,9%, 11,4% and 5,9% respectively. Furthermore, Kenya’s economic growth rate for 2013 has been adjusted to 5,7% from 4,7%.

According to international credit insurer Coface, Kenya is among the next top 10 emerging economies, which are catching up to the triumphant BRICS nations.

“After 10 years of frenetic growth, BRICS are slowing down sharply: for 2014, Coface forecasts growth of, on average, 3,2 points lower than the average growth these countries registered over the previous decade,” said Coface in a statement. “At the same time, other emerging countries are accelerating their development.

Among them, a ‘top 10’ emerges, with good production prospects and sufficient financing to support expansion.”

Based on several factors, including accelerated growth, economic diversity and resilience, Kenya has been identified as a new emerging country, alongside Tanzania, Zambia, Bangladesh and Ethiopia. However, Coface has placed it in a particular market category that’s prescribed as a difficult business environment that could result in hampered growth prospects.

Kenya’s fluctuating position has also been reflected in the recent results of the annual 2014 Ibrahim Index of African Governance report. According to the report, Kenya has moved up four places from 21 to 17 (out of 52 African countries) – yet it scored poorly in various aspects.

While Kenya’s 57,4% score is higher than the African continent’s average of 51,5% and east Africa’s average of 48,5%, the country’s performance wasn’t too impressive in terms of national security (down 3,5 points), public management (down two points), and business environment and education (down by 1,1 points each).

However, it should be noted that Kenya’s greatest improvements are in public participation (up 14,8 points) and infrastructure (up 12,8 points). It also scored well in health, accountability, rule of law, gender and the rural sector.

The Kenyan property industry According to a research report by the Royal Institution of Chartered Surveyors, Kenya was one of the five key African case studies highlighting the opportunities in prime property markets in sub-Saharan Africa.

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eye on Africa Entitled “Unleashing Sub-Saharan African Property Markets”, the report notes that Kenya’s capital city, Nairobi, is fast entrenching itself as a regional commercial hub. This has seen office space stabilising due in large part to international corporates setting up regional headquarters there. This has increased market absorption of the oversupply of office space in the capital city.

As a result of the rapidly growing middle class, the mortgage sector is showing new developments and increased competition.

Regardless, it still only remains accessible to a small portion of the population because the average interest rate on a mortgage was 19% at 2012 year-end.

On the infrastructure front, the Kenyan government has placed great emphasis on infrastructure development. Some of the latest infrastructure projects include the construction of a key transport corridor and oil pipeline into the port of Lamu in 2014. Kenya will be collaborating with neighbours Ethiopia and South Sudan on this project. Despite this, low infrastructure investment threatens Kenya’s long-term position as the largest east African economy.

Like Kenya’s slowing economy, the country’s property market has been labelled as somewhat sluggish. According to Knight Frank’s Second Quarter 2014 Kenya Market Update report, Q2 of 2014 saw a lethargic property market in Kenya, with reduced takeup rates for prime retail and office space, and shift of focus in the residential segment to smaller residential apartments.

Knight Frank pointed to insecurity, terrorism and oversupply as the main culprits contributing towards Kenya’s property market performance slowdown. The report noted that the knock-on effect stemming from safety issues has resulted in the reduction in take-up rates for prime retail space in major malls under construction, while the reduced take-up rates for prime office space was mostly attributed to ongoing road and infrastructure works.

On the residential side, Knight Frank pointed out that the lethargic prime residential market was brought on by a saturation in the market, with developers changing from three- and four-bedroom apartments to studio, one- and two-bedroom apartments. However, there is positive movement, with an increase in land values in prime low residential areas.

On the contrary, Kenya’s slowing real estate sector is seen by some as an easy and cheap opportunity to enter the market.

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As Kenya’s most authentic tribe, the Maasai epitomise the country’s rich cultural and ethnic diversity

Despite the high cost of mortgages, plethora of taxes and expensive land prices, Kenya’s real estate market poses no bubble threat, and with a rapid population increase and a growing economy, the demand for property is being fed against a limited supply.

Retail market Kenya’s retail sector appears buoyant despite security woes resulting from the Westgate Mall attack. In recent times, Kenya has experienced an increase in decentralised urban shopping malls, both within Nairobi and in secondary cities such as Mombasa, Kisumu, Eldoret and Nakuru.

Kenya has seen the entry of several prime shopping centres, with recent additions including Galleria Shopping Mall, The Junction Phase Two and Roysambu Mall in Nairobi, and City Mall in Mombasa.

Such retail centres have paved the way for new tenants to enter the market. These include KFC and Game, expected to open in the new, highly anticipated Garden City Mall on Thika Road in Nairobi.

Currently under construction, Garden City Mall will become the largest mall in East Africa as an integrated residential, retail park, hotel and office development. Situated along the eight-lane Thika superhighway, the 13ha development will include 50 000m² of retail, 500 homes and a 2ha central park with an outdoor concert arena. The mall will also boast sustainable design elements – solar energy company Solarcentury is designing and constructing Africa’s largest solar carport on the uppermost storey of a carpark at the mall.

The installation of solar panels will help Garden City achieve its Leadership in Energy

Real GDP growth Real GDP growth (%)

%

Eastern Africa (%)

Africa (%)

10 9 8 7 6 5 4 3 2 1 0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013(e)

2014(p)

2015(p)

Source: AfDB, Statistics Department AEO; estimates (e); projections (p)

Nairobi prime rents and yields Prime rents

Prime yields

Offices

US$15/m2 per month

9%

Retail

US$31/m² per month

10%

Industrial

US$4/m² per month

12%

Residential

US$4 400 per month*

6%

Source: Knight Frank LLP * Four-bedroom executive house – prime location

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eye on Africa and Environmental Design certification.

The new integrated development is set to be a showcase for environmental design, incorporating a broad range of energysaving solutions.

Future malls are in the development pipeline in the capital – these include the Mall of Kenya at Tatu City and Two Rivers in Runda.

In terms of rates and growth, occupancy rates remain very high, with good rental growth across the sector.

Industrial and office market Traditionally quiet, with minimal development, the industrial sector in Kenya is beginning to gain traction as the country is experiencing a high degree of speculative industrial development. While most occupiers used to tend towards owning their own property, the industrial market is now beginning to emerge, with rental coming into the picture. The sector is especially garnering attention along the Mombasa Road in Nairobi. But while rents are very low and

Q&A: Dr Daniel Davies, Director at Solarcentury in East Africa Q How is the current economic and political landscape faring in Kenya?

With the one-year anniversary of the Westgate Mall attack, security has been a major concern, which has had an impact on the country. However, it’s a dynamic and exciting place to work in. Currently a lot of development is going on, especially in the main centre of Nairobi. The agricultural sector is performing well, with investment in the sector having contributed towards the opening up of new land. The tea market is also being stimulated. There’s also the development of new infrastructure, specifically in energy and roads. Investment into property has also picked up.

Q How is Kenya’s overall development looking?

I’ve been working in the Kenyan market for the past 25 years and the growth has been phenomenal. Kenya is definitely underestimated and overlooked. Its key foreign exports include tea, flowers and fresh produce. There’s a lot of talk about the oil and gas finds in Kenya, which have yet to start flowing as prime exports. Tourism has been negatively impacted as a result of safety issues, and the boundaries established have made it difficult to enter Kenya.

the take-up is slow, it will take some time before the sector is well established.

A current trend is for some developers to seek purpose-built speculative logistics parks, which may see a migration of light industrial occupiers from the traditional industrial centre to new locations on the periphery of Nairobi, thereby taking advantage of the new road infrastructure.

In terms of the office market in Kenya, the sector has grown from being an oversupplied market to one that is stable. In light of this, Nairobi has solidified its position as the regional commercial hub of sub-Saharan Africa. A large number of the recent take-up has been the result of large corporates setting up regional headquarters in Nairobi, mainly because of new routes opened up by Kenya Airways, which enable direct flights to central and west Africa.

Residential market According to the Knight Frank Africa Report for 2013, a rapid increase in interest rates from 16% to 25% in the final quarter of 2011 led to a slowdown in residential development, which was in danger of overheating at the time.

“This has led to a drop in sales volumes, particularly in the mid-market, although house sales at the very top end of the market have been largely unaffected,” notes the report. “Rental values have continued to climb, partly as a result of a shift away from the mortgage market, resulting in improving yields across the sector.”

Q How crucial is infrastructure development in Kenya?

If you travel around Kenya, it’ll become obvious that there’s massive investment in infrastructure development, especially in the form of new roads that bypass the city centre to alleviate heavy traffic congestion. There’s also an ambitious plan to expand power generation – 1,8 gigawatts of power is currently being generated, which is set to expand by five gigawatts over the next several months. Getting people connected to the electrical power grid has become crucial.

Q Is property booming in Kenya?

Property development is most notable in Nairobi, where mixed-use retail and office are popular. There is also a lot of residential development happening in the suburbs. There are big retail projects under way with residential and/or hotel elements to them.

Current projects include Garden City Mall, Two Rivers Mall and The Hub Karen.

Q What are the future prospects for Kenya?

What’s very striking is the extent to which technology has been deployed to assist Kenya’s people. Mobile technology has leapfrogged and the country is now famous for its mobile banking. Kenya is also a global leader in geothermal power. What excites me about being here is solar power’s ability to play a part in development and growth. There’s potential for Kenya to be a low-carbon country and become less susceptible to climate change.

Dr Daniel Davies, Director at Solarcentury in east Africa SOUTH AFRICAN PROPERTY REVIEW

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investment and business roadshow

Durban set to become a major business hub The Durban Chamber of Commerce and Industry, in collaboration with eThekwini Municipality and Trade & Investment KwaZulu-Natal, hosted an Investment and Business Roadshow in Durban on 17 and 18 September

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he event was well attended. Investors and property professionals were treated to highly informative presentations by various project owners invited to present their investment projects to the delegation.

After opening comments from Andrew Layman, Chief Executive Officer of the Durban Chamber of Commerce and Industry, the programme commenced with presentations

by Trade & Investment KwaZulu-Natal (Kanyi Ntoko-Gasa, Executive Manager: Investment Promotion) and Durban Investment Promotion, eThekwini Municipality (Russell Curtis, HOD), who outlined and reinforced KZN investment intent, vision and values, which aim to attract the national and international investor community to the province.

This was followed by an update on the Durban Dig Out Port project by Irvindra Naidoo (GM: Group Strategy at Transnet).

The presentation outlined the critical need for this catalytic project to proceed, in context of the logistics growth anticipated over the next 20 to 30 years, with slides showing the proposed port layouts and statistical projections to support the need for the development.

Delegates were then transported to Dube City, where Tim Hudson (Project Manager at Dube Tradeport) presented the various leasehold investment opportunities currently on offer as well as an expansive pipeline of projects coming on stream shortly. This was followed by a trip to the impressive Cornubia Industrial Business Estate, a Tongaat Hulett Developments (THD) development under construction, with more than 90% of phase one

36

already sold. Greg Veerasamy (Development Executive at Tongaat Hulett), outlined the overall project status, a joint venture between THD and the eThekwini Municipality, with the first phase of the low-cost housing component also being visited.

Tongaat Hulett head office was the next destination, where further presentations were given regarding the aerotropolis development plans of the JSE-listed company, which include the Bridge City mixed-use node, the soon-tobe-launched Sibaya Residential Estate and the Ushukela Highway Industrial Estate adjacent to the King Shaka Airport.

The highly informative day was concluded with a dinner and a civic reception by the eThekwini Municipality, held at the Cargohold in the Ushaka Marine World.

Day 2 of the roadshow commenced at the Elangeni Hotel presentation room, with a presentation from Pat Conway (Project Manager at KDC Projects and Developments), who presented his Kings Estate mixed-use industrial, commercial and residential development, also located within the aerotropolis node on the North Coast. This was followed by a slick and dynamic presentation by Dr Sharron McPherson on behalf of the Finningley Joint Venture Development Company.

The Finningley Growth Sphere is located on the Durban South Coast and already has investment support from the US in its quest to offer a substantive, unique and innovative sustainable development model to the province.

Cornubia Industrial Estate site visit

SOUTH AFRICAN PROPERTY REVIEW

Durban CC Advertorial_NOV.indd 36

2014/10/10 1:36 PM

investment and business roadshow event promises even more exciting projects and activities as part of the programme for our local/national and international investors to enjoy and participate in.

Readers wanting more information are welcome to visit Kwazuluinvestor.co.za and follow the link through to the Durban Chamber of Commerce and Industry website, where copies of the presentations are available. Alternatively, please contact James Arnott for more details. t: +27 (0)83 625 8078 e: james@arnottconsulting.co.za

Investment opportunities include projects in all quarters of Durban:

Farah Goolam, Russell Curtis and Greg Veerasamy

The Clairwood Racecourse redevelopment project then followed, presented by TC Chetty from Capital Projects. The development will offer a much-needed back-of-port logistics space in anticipation of a surge in demand with the Transnet port expansion plans, and will come online as soon as various approvals have been completed.

LIV Village showed a short video clip on its ground-breaking community initiative based in Tongaat on the North Coast. Its investment needs were strongly endorsed by both Curtis and Layman as a great CSI opportunity for local and international businesses, grants and funds to participate in.

The final leg of the roadshow involved getting back on the bus and heading off to the KwaMnyandu Town Centre Development in Umlazi, where project manager Vuyo Jayiya gave a presentation on the commercial investment opportunities that will be coming online, following the successful development of the KwaMnyandu retail mall. The development has been heralded as a groundbreaking initiative with regards to previously disadvantaged township redevelopment in the region.

A tasty shisa nyama (a barbecue/braai) lunch was then held at local restaurant Max’s.

With full stomachs, delegates then headed to

the Mpumalanga Town Centre Development in the N3 corridor, heralded as KwaZuluNatal’s future version of Gauteng’s powerful economic Midrand corridor. Here, Peter Gilmore (Project Manager at eThekwini Municipality) gave a breakdown of the industrial and commercial investment opportunities available in the node, following the successful development of the Mpumalanga retail shopping mall.

To end a highly informative day, a tired and satisfied group of delegates was treated to sundowners and snacks at the Pot and Kettle in Hillcrest (on the world-renowned Comrades Marathon route), before heading back to the hotel.

In summary, the Durban Investment and Business Roadshow provided two days of wellorganised site visits and entertainment, along with some exceptional presentations.

The message that KwaZulu-Natal – and Durban in particular – is an investment destination that stands out head and shoulders above most other developing areas around the globe, was put across in no uncertain terms.

The event – the first of its kind – needs to be a permanent fixture in the investment promotion calendar for the province. With the necessary support and promotion, next year’s

In the north Dube Trade Zone Dube City Kings Estate Bridge City LIV Village Training Centre Sibaya Phases 1 and 5 Ushukela Highway In the south Finningley Estate Clairwood Racecourse KwaMnyandu Shopping Precinct South Illovo Precinct In the west Mpumalanga Town Centre Cato Ridge Hub Details of these projects are available at Kwazuluinvestor.co.za.

They address: • • • • • •

City development Residential development Commercial and retail land use Infrastructural development Industrial development Logistics

SOUTH AFRICAN PROPERTY REVIEW

Durban CC Advertorial_NOV.indd 37

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2014/10/15 11:07 AM

s●

series

●

monthly coun our

Th e WOR

LD

by-country focu try-

China’s fortune-cookie cutter may have gone awry as concern heightens over its slowing economy. But the world’s most powerful emerging market remains opportunistic

By Candace King

Key facts ▼ Population 1,36-billion (2013) ▼ Major cities Shanghai, Beijing, Tianjin, Guangzhou, Shenzhen, Dongguan, Taipei ▼ Currency Renminbi (RMB) ▼ Total area 9 596 961km2 ▼ GDP growth 7,7% (2013) ▼ Key industries Manufacturing, steel, cement, automotive, information technology, energy, services

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Crouching China, hidden economy R

eporting on China is a grand task – the east Asian giant is a hub of vast activity.

Whether it’s politics, economics, social issues, technology, infrastructure or bizarre delicacies, there’s much to divulge about.

Hot topics about China at the moment include the Hong Kong democracy debacle as well as its sluggish economy. Concerning the latter, it appears as though China has hit a wall – and a great one at that.

Over the past 30 years, China’s economic performance has been phenomenal – China has achieved a 9,9% average compound growth rate and lifted 500-million people out of poverty. It’s currently ranked as the world’s largest exporter and manufacturer, and it is predicted that, by 2025, China will be the world’s largest economy.

According to the World Bank’s “China 2030: Building a Modern, Harmonious and Creative Society” report, China is a unique development success story that acts as a catalyst for other countries seeking prosperity. The report notes that China offers valuable lessons about the importance of adapting to local initiative and inter-regional competition, integrating with the world, adjusting to new technologies,

building world-class infrastructure and investing heavily in its people.

The report predicts that in the next 15 to 20 years, China is well-positioned to join the ranks of the world’s high-income countries. However, China’s GDP growth has slowed to about 7,5%, having recorded a 7.7% growth rate for 2013. Despite this, China has remained optimistic and has continued to engage dramatically in economic expansion.

In its China 2030 report, the World Bank notes that, “Even if growth moderates, China is likely to become a high-income economy and the world’s largest economy before 2030, notwithstanding the fact that its per capita income would still be a fraction of the average in advanced economies.”

Without sounding unrealistic, the report adds, “China has the potential to be a modern, harmonious and creative high-income society. But achieving this objective will not be easy. To seize its opportunities, meet its many challenges and realise its development vision for 2030, China needs to implement a new development strategy in its next phase of development.”

SOUTH AFRICAN PROPERTY REVIEW

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eye on the world As the world’s second-largest economy, most populous country and second-largest country by land area, the People’s Republic of China has had the largest and most complex economy in the world for most of the past two thousand years. From the early 1500s until the early 1800s, China’s economy was the world’s largest. It’s an economy that’s experienced cycles of both prosperity and decline.

Its development, growth and performance have been described as a second industrial revolution, and it’s regarded as the world’s fastest-growing market. But China’s claim to global fame has long been in the making.

Made in China Known for its vivid culture that harks back nearly 4 000 years, China’s heritage is among the world’s oldest. The country has been the globe’s greatest discoverer and inventor: paper, gunpowder, credit banking, the compass and paper money all originated in China.

Its political history has been characterised by rigid authoritarianism as well as communist rule. There has been civil war, state rivalry, invasion threats, political restructuring and economic reform.

In modern times, China can best be described as a country of contrast. While its government still retains strong autocratic control over China, the country has made leaps and bounds in advanced technology, futuristic infrastructure and urbanisation.

Over the past three decades, China's urbanisation has supported high growth and rapid transformation of the economy.

China has also launched an ambitious space-exploration programme and aims to establish a space station by 2020. Science and technology in China have grown rapidly over the years – 36 860 industrial robots were sold in the Chinese market in 2013.

While the government cracks down heavily on the internet in China, the world wide web is a powerful medium in the country – 632-million internet users in China were recorded by the end of June 2014.

In terms of business and economics, China is one of the world’s top exporters and manufacturers. In 2010, China became the world’s largest exporter – China’s exports value stood at US$219,9-billion in July 2014.

China is also attracting large amounts of foreign investment and, in turn, investing heavily in other markets – especially Africa,

of which it is now the biggest trading partner.

Like most markets in the world, China was hit hard by the 2008/2009 global financial crisis; however, it was one of the first economies to bounce back and quickly return to growth.

In terms of resources, China is heavily reliant on oil and is the world’s second-largest oil consumer. It’s also the world’s biggest producer and consumer of coal. Its key industries include manufacturing, steel, cement, automotive, information technology, energy and services.

China is currently refocusing its economy away from manufacturing towards the services sector – 2013 was the first year in China when services contributed more towards GDP than manufacturing. However, manufacturing remains a prime sector.

In the first half of 2014, 11,68-million automobiles were sold in China. This year, 5,33-million ageing motor vehicles will be taken off the roads.

While economic reform has replaced state socialism with a more capitalist system and generated rapid growth, China still faces looming problems O V E R such V I E as W growing inequality, 5 pollution, rural poverty, an inefficient state sector and low domestic consumption.

18 16 14 12 10 8 6 4 2 0 –2

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GDP (US$ billions, current prices)

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well as administrative means when necessary. As a result, the authorities were broadly

Eye On The World China_SUBBED.indd 39

and regional differences meant that local governments could experiment with and

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2014/10/10 3:49 PM

eye on the world Social unhappiness is also rife in China Urbanisation and rapid as many citizens fear that, with the inception development in China has of private enterprise, unemployment and been a double-edged sword instability will rise. With swelling urbanisation, economic disparity is still an issue as rural that’s now been lodged China remains impoverished. Corruption in government, environmental degradation, high in China’s side. Since pollution and a growing rate of HIV infection economic liberalisation are further problems that the country faces.

China’s massive population of more than three decades ago, China’s 1,3-billion has resulted in employment urban population has risen difficulty for graduates. However, the country is tackling its problems – in the first half of by more than 500-million. 2014, 7,4-million new jobs were created. the government has pledged to By 2030, China’s cities Furthermore, assist 800 000 university graduates start up will contain about a their own businesses from 2014 to 2017. billion people The house that China built

370

Urbanisation and rapid development in China has been a double-edged sword that’s now been lodged in China’s side. Since economic liberalisation three decades ago, China’s urban population has risen by more than 500-million. By 2030, China’s cities will contain about a billion people.

In hand with urbanisation, China has fasttracked its development. Its cities are among the most prolific in the world, characterised by mammoth skyscrapers, milling public transport and hi-tech features.

While the World Bank in its recent report on urban China commends the fact that the country’s urbanisation has steered clear of developing world commonalities such as urban poverty, squalor and unemployment, there are both economic and social flaws – and they’re now really starting to show.

The problems include the fact that Chinese farmers lack property rights, thus rural areas are snapped up and transformed into cities,

CHINA 2030

FIGURE 5.1

which often turn into ghost metropolises – a rising trend in China that has resulted in vast incurred debt. Another huge problem is pollution – China is one the biggest emitters of carbon dioxide.

As the value of the housing market continues to decline, the housing sector has dragged down growth in China – housing sales fell 10,2% in the first five months of 2014.

Furthermore, there has been a rapid decrease in activity in China’s property development sector. The slump in the property market has resulted in the drop of the China Services Index to a record low.

In light of the real estate slump and housing sector decline, Chinese policymakers have eased property restrictions for the first time since the global financial crisis.

Several Chinese cities have done away with household registration restrictions on property investment.

However, property is becoming more affordable, with the average home costing about 8,8 times the annual income of the average Chinese household, down from nearly 12 times in 2010.

Returning to the topic of China’s slowing economy, China’s policy makers don’t seem to be too concerned, dubbing the current sluggish growth as “the new normal”. The slowdown has been described as China’s economy simply shifting from high gear to middle gear.

Whichever gear, China’s future economic growth at this point can go either way.

Investment analysts have yet to make any solid predictions on the impact of the Hong Kong protests on China’s economy. What has been suggested is that India’s economy may have a brighter future than China’s all thanks to one key aspect: freedom.

rda Valley, West, Wie rda Road 6 Park, 36 Wie End Office 78544, Sandton 214 0684 w, Hunt’s PO Box (0)11 883 Paddock Vie 9 f: +27 1 883 067 a.org.za t: +27 (0)1 www.sapo

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Growth trends

5-year moving average annual GDP growth

Figure 2: Growth trends 14 12 10 8 6 4 2 0 1960–65

1966–71

1972–77

1978–83

China

1984–89

1990–95

1996–2001

2002–07

Developing countries, not including China

2008–13

2014–19

2020–25

High-income countries

Source: Bank calculations.

Source:World World Bank calculations

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SOUTH AFRICAN PROPERTY REVIEW

all high-income countries together. That has important consequences for China. Not only Eye On The World China_SUBBED.indd 40 will competitors to Chinese firms be predom -

the Armington assumption of differentiated products. To analyze global environmental policies, a climate change module is incorpo -2014/10/10

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Eye On Theflyer World China_SUBBED.indd 41 Excellence 2014.indd 1

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2014/10/15 11:21 11:20 AM

China Africa Business Forum

The Asian-African opportunity The Chinese dragon joins forces with the African lion as business and investment gains traction between the world’s two largest emerging markets

By Candace King Photographs by Michael Glenister

T

FROM TOP Dr Martyn Davies, Chief Executive Officer of Frontier Advisory; Dr Michael Power, a strategist at Investec Asset Management; Peter Draper, Director of Tutwa Consulting

42

he trade and investment landscape in China and on the African continent appears robust. This sentiment was echoed at the recent annual China Africa Business Forum, which fleshed out the strengths, weaknesses and opportunities of both China and Africa, addressing future ties between the two emerging markets.

Not only is China Africa’s biggest trading partner, it is also South Africa’s largest trading consort, according to Dr Martyn Davies, Chief Executive Officer of Frontier Advisory. Over two-and-a-half decades, China has achieved a 9,9% average compound growth rate. China is also the largest financier of infrastructure through its policy banks, and is the biggest lender to African governments.

Like China’s, Africa’s star is rising as key countries on the continent gain traction in terms of GDP growth and foreign direct investment. Investment between the two emerging powers is surging, with Chinese business setting up shop in Africa and vice versa. “Chinese enterprises are going global, and paying more attention to the African market,” said Rong Yansong, Economic and Commercial Councillor of the Embassy of the People’s Republic of China in the Republic of South Africa.

“China is not unknown to Africa. Trade between the two has been active for decades,” said Dr Michael Power, a strategist at Investec Asset Management. “It is predicted that by 2025, China will be the world’s largest economy.”

Peter Draper, Director of Tutwa Consulting, said that China is refocusing its economy from manufacturing to an emphasis on the services sector. In terms of investment, African coastal countries will be targeted, as well as those that boast large populations. “I think the key to the Chinese growth model has been the private sector component – the private sector comprises 70% of the Chinese economy,” he said.

Chinese investment in South Africa is surging, a reality highlighted by the multibillion rand Zendai Modderfontein development in Johannesburg. The acquisition of 1 600ha of land in Modderfontein to develop a mixed-use urban centre is an indication of Chinese ambitions in subSaharan Africa. The investment underscores the maturing relationship between the two

economies as well as diversifying interests, previously dominated by trade in minerals.

“There is a positive forecast for the future of Africa, especially South Africa,” said Du Wenhui, Chief Operating Officer of Zendai South Africa. “South Africa is the 27th-largest economy in the world and constitutes 25% of Africa’s GDP. The political environment is relatively stable and the country boasts an advanced financial industry. It was named ‘African Country of the Future 2013/2014’ by fDi Magazine.”

Emerging investment, emerging concerns “The fundamentals of Africa’s economies are on a positive footing,” said Colin Coleman, Head and Managing Director of Goldman Sachs South Africa. “The bankability of projects is key for China’s investment in the continent.

However, the institutional readiness of Africa is where China is hitting the sand in terms of investment. While oil and gas are both present in Africa, if the infrastructure needed to utilise such resources is absent, then investment won’t flourish. China is strategically looking at a long-term involvement in Africa. The question is, how much reform is going to take place in Africa to further allow or stimulate this Chinese investment? China’s success depends on Africa’s reform and modernisation.”

With the current slowdown of China’s GDP growth to between seven and 7,5%, there is a nervousness looming about the market’s longevity. On the contrary, South Africa’s GDP is lingering around the twopercent mark.

“Can China rebalance? Yes, I think this is possible – China has been a crisis-resistant economy over the last 20 years,” said Draper.

“I think it’s healthy for there to be a few bumps along the way,” said Power. “China is still a dancing elephant; it’s still a dominant power. There will be hiccups, but I believe the Chinese story won’t be knocked off the map. In terms of China’s political authoritarianism, I don’t think you need freedom in order to innovate. The roll-out of appropriate infrastructure in China has been a key ingredient in the country’s success. Sadly, I cannot say the same about South Africa.”

SOUTH AFRICAN PROPERTY REVIEW

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China Africa Business Forum South Africa’s political and economic stance is a key concern in terms of the investment in Africa because the country serves as a springboard into the continent.

“There is growing skepticism towards increasing foreign multinational corporations in South Africa, which is worrying in terms of the fact that it’s a gateway into the rest of Africa,” said Draper. Further skepticism lies in the quality of China’s products – a stereotype that has long haunted the market.

From a legal perspective, Des Williams, Chairman of Werksmans Attorneys, noted that legislation issues and disputes will be part of the game – in the next 10 to 20 years, there will be disputes.

“The question of neutrality is a key issue – there needs to be arbitration and agreement upfront,” he said. “No major Chinese investor or South African entity wants to go through lengthy litigation processes in the courts of both countries. Chinese culture is arbitrationfriendly, where there has been growth in recent years. In recent times, South Africa has walked away from investment treaties. The Asia-Africa commodity and trade corridor is a major opportunity for legal firms. Nigeria is hugely active on the arbitration front while South Africa is being used as a neutral arbitration centre.”

Investing in relationships for future growth A key remedy to the host of concerns is to build relationships and trust. “How do Chinese companies build trust in Africa? It comes down to branding – it was the late Nelson Mandela who said that a brand speaks to the heart and not the head,” said Alan Hilburg, the founder of Hilburg Associates. “When you deliver a consistent experience, the result is a relationship of trust. What’s missing? South African leaders say it’s that element of trust.”

Davies noted that a long-term building of trust is needed. “The biggest challenge when it comes to operating in Africa is culture,” he said. “The same can be said about China.

An understanding and strengthening of the cultural and language bond will be key for developing trust between the two markets.”

“There needs to be an awareness about what’s coming out of China,” said Margaret O’Connor, Strategic Marketing, Communications and Business Development Expert at Hilburg Associates. “There are really good brands and products being manufactured in China. We also need to listen to African consumers and their needs.”

While China’s growth is decelerating and Africa faces problems including the failure of government and institution management,

the opportunities are there. “Despite all the differences – whether they be governmental, legal, cultural or linguistic – we need to build trust,” said Davies.

Moving forward, he said the trends to watch will include the rise of the RMB, which is a key global issue, and that in future, Africa will utilise the RMB on a consumer level.

Another trend is the entry of South African companies into China – and vice versa. “The likes of Naspers and SABMiller are doing very well in China,” he said. “Zendai’s investment in South Africa is a visionary feat, and this is what South Africa is lacking – vision.

Furthermore, we need to find the common points in order to build trust. I think the inclusion of both parties in the globalisation race will be a good start.”

CLOCKWISE FROM TOP LEFT Des Williams, Chairman of Werksmans Attorneys; Colin Coleman, Head and Managing Director of Goldman Sachs South Africa; Margaret O’Connor, Strategic Marketing, Communications and Business Development Expert at Hilburg Associates; Du Wenhui, Chief Operating Officer of Zendai South Africa; Alan Hilburg, the founder of Hilburg Associates; Rong Yansong, Economic and Commercial Councillor of the Embassy of the People’s Republic of China in the Republic of South Africa

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Rising high Having come a long way since its inception just shy of three decades ago, Hyprop Investments Limited continues to grow, with a strong focus on top-notch retail assets and prime real estate in Africa

By Candace King BELOW Pieter Prinsloo, Chief Executive Officer of Hyprop Investments Limited

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ith years of experience and a niche focus on the retail sector, Hyprop Investments Limited forms a significant part of the South African property industry’s history. The Group was established in 1987 and listed on the Johannesburg Stock Exchange (JSE) one year later in 1988.

Adding to its strong position in the property sector is the fact that Hyprop Investments Limited is listed on the JSE’s retail Real Estate Investment Trust (REIT) sector. Hyprop Investments Limited’s application for REIT status was approved by the JSE, effective 1 July 2013.

Hyprop Investments Limited’s portfolio boasts a host of key property assets in major metropolitan areas across South Africa. As retail specialists, Hyprop Investments Limited directly owns 12 prime shopping centres situated in Gauteng and the Western Cape.

Hyprop Investments Limited’s super-regional, large regional, regional and value/lifestyle shopping centres offer a variety of superior leasing opportunities.

The core portfolio consists of premier shopping centres, including the super-regional Canal Walk; large regional centres Clearwater Mall, The Glen Shopping Centre, Woodlands Boulevard, CapeGate Shopping Centre, Somerset Mall and Rosebank Mall; and the regional centre Hyde Park Corner.

Hyprop Investments Limited is in the process of disposing of its stand-alone office portfolio as well as non-core retail assets Stoneridge Shopping Centre, Willowbridge Shopping Centre and CapeGate Lifestyle Centre. As a result, these assets have been classified as held-for-sale.

Hyprop Investments Limited also boasts a presence in the rest of Africa. The Group’s growing presence in sub-Saharan Africa (excluding South Africa) is held through Atterbury Africa (subsequently renamed AttAfrica), a joint venture between Hyprop Investments Limited, Attacq Limited and the Atterbury Group. The company embarked on its sub-Saharan strategy in 2012 and intends to invest up to R3-billion in sub-Saharan Africa (excluding South Africa) over the next three years.

“Hyprop is one of Africa’s leading listed property companies, specialising in highquality shopping centres,” explains Pieter Prinsloo, Chief Executive Officer of Hyprop Investments Limited. “It is also one of South Africa’s oldest listed property companies and operates as an internally managed REIT, based in Rosebank, Johannesburg.”

Prinsloo notes that Hyprop Investments Limited’s aim is to offer access to income and capital growth through a specialist portfolio of premium, high-quality shopping centres in a transparent and sustainable investment vehicle.

Furthermore, Hyprop Investments Limited strives to be a world-class shopping centre fund that adheres to global best practice and to be the partner of choice for tenants,

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cover story Hyprop Investments Limited’s shopping centre portfolio Super-regional • Canal Walk Large regional • Clearwater • The Glen • Woodlands Boulevard • CapeGate • Somerset Mall Regional • Hyde Park Corner Value centres • Atterbury Value Mart • Willowbridge • Stoneridge • Somerset Value Mart

As one of its largest redevelopments to date, Hyprop Investments Limited undertook an extensive R930-million redevelopment and refurbishment of Rosebank Mall, expanding the large regional mall from 36 000m2 to 62 000m2

shoppers, employees and investors. Hyprop Investments Limited therefore proactively accommodates new retail and lifestyle trends to retain its loyal customer base across the entire portfolio.

The Group’s goal is to provide a trustworthy, transparent and sustainable investment, and to promote social and environmental sustainability. In 2014, the Group conducted a comprehensive external analysis of its environmental, social and governance strategy. The review confirmed the value of initiatives already under way and highlighted areas of improvement.

Key to Hyprop Investments Limited’s investment strategy is full or majority ownership of paramount shopping centres in sub-Saharan Africa. With effective control of its prime assets, Hyprop Investments Limited can draw on the depth of in-house management expertise to achieve continued growth.

A focus on a continually enhanced tenant mix and redevelopment of existing assets ensures improved performance, supported by strong contractual escalations, and close monitoring of arrears and overheads.

Attractive investment By market capitalisation, Hyprop Investments Limited ranks third in its sector and manages almost one-third (more than 750 000m2) of the gross lettable area (GLA) in shopping centres nationally, offering investors direct access to high-quality shopping centres in South Africa and exposure to malls in subSaharan Africa through a transparent investment vehicle geared towards ongoing income and capital growth.

The R26,4-billion fund has a proven track record of consistent growth in returns: over the past decade Hyprop Investments Limited delivered 11,7% growth in distributions in terms of cents per combined unit (cpu),

while the unit price has grown by 18,4%, delivering a total return of 32,1%.

Hyprop Investments Limited’s growth is evident as stated in its recently released full year results to end June 2014, which highlighted that it exceeded guidance with continued solid distribution growth. Hyprop Investments Limited announced a distribution of 472cpu for the year to June 2014, up 11,3% on FY2013 and ahead of guidance previously provided by the company.

Prinsloo says the good performance was driven by strong distribution growth of 13,1% in the second half of the year, mainly attributable to a solid performance at the super- and large regional shopping centres in Hyprop Investments Limited’s portfolio, savings on interest costs and the acquisition of African Land in December 2013.

Total property assets were up 17,5% to R26,4-billion, and investment in sub-Saharan Africa (excluding South Africa) increased to R2,2-billion. The fund’s net asset value was up by 11,1%.

Distributable earnings from regional, large regional and super-regional malls (excluding Somerset Mall, acquired October 2013) was up 9,5%, with average growth of 11% from The Glen Shopping Centre, Clearwater Mall and Woodlands Boulevard.

Property expenses were well controlled with a cost-to-income ratio of 34,4%. The total cost-to-income ratio increased slightly to 37,3% (30 June 2013: 35,1%) because of a reduction in income from listed investments following Hyprop Investments Limited’s disposal of its stake in Sycom Property Fund, as well as the once-off consolidation of fund management costs when Hyprop Investments Limited bought 87% of African Land.

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cover story Rosebank Mall continued to be impacted by the redevelopment programme. This saw distributable earnings decrease by R16,1million in line with budget. Prinsloo says he is pleased with the progress made at the Rosebank Mall redevelopment, with the centre fully let. Total capital cost remains within the budget of R932-million at an estimated yield of seven percent.

Net interest on borrowings was 3,6% higher year-on-year as a result of proceeds from various disposals, amounting to R205-million in total, reducing short-term funding requirements.

Occupancy levels across the portfolio remained high at 97,6% (30 June 2014: 97,3%).

Retail vacancies decreased to 1,2% (30 June 2014: 2,1%), while vacancies in the office portfolio, which constitutes only five percent of the total portfolio in GLA, increased to 13,8% (30 June 2013: 8,1%). Subsequent to year-end, vacancies in the office portfolio fell to 9,5%.

Investment property increased to R25,6billion from R19,8-billion a year ago, driven primarily by income growth and the acquisition of Somerset Mall and Manda Hill shopping centre (African Land). During the year, Hyprop Investments Limited received dividends of R4,8-million and

R30,3-million from Atterbury Africa and African Land respectively.

The Group further advanced its African strategy with the restructuring of African Land, in terms of which Hyprop Investments Limited, through Hyprop Investment (Mauritius), will hold 50% in Manda Hill, African Land’s only asset. Atterbury Africa will hold the balance. Following the restructuring, Hyprop Investments Limited’s effective interest in Manda Hill will be 68,75%, down from 87%.

Net borrowings increased to R7,1-billion, mainly as a result of the acquisition of African Land, capital expenditure on the Rosebank Mall redevelopment and developments in Atterbury Africa.

A number of projects aimed at improving energy efficiency were successfully completed during the year. To date, these initiatives have saved 4,9-million kWh, representing cost savings of R5,9-million. Among other initiatives, Hyprop Investments Limited will install a 500kWp solar photovoltaic plant at Clearwater Mall at a cost of R8-million.

On the SA listed sector With a host of recent new listings, Prinsloo says that the listed sector is indeed growing

and gaining traction. “The South African listed property sector has grown by market capitalisation from R5-billion 12 years ago to R315-billion today,” he says. “It ranks in the top 10 REIT markets in the world.”

On the benefits of listing, Prinsloo points out that, “Being listed provides the company with an alternative source of funding (equity) outside of debt. For investors, listed companies offer transparent and reliable disclosure, which can be easily compared. As shown by the recent earnings cycle, property funds have proved resilient (despite a challenging macroeconomic backdrop) by delivering strong financial results. As indicated by our results, Hyprop has proved particularly defensive.”

Prinsloo notes that the transition to a REIT structure has aligned the South African listed property sector to global standards and enhanced the appeal of the sector as an investment vehicle. “The REIT structure is an international standard for property investment, where a tax dispensation ensures flow through of net property income after expenses and interest,” he explains. “More than 25 countries use a similar model, including the US, the UK, Australia, Belgium, France, Hong Kong, Japan and Singapore.

Hyprop Investments Limited’s Africa portfolio Property

GLA (m2)

Atterbury Africa Ownership

Hyprop’s effective share

Status

Accra Mall (Accra, Ghana)

19 000

47%

17,6%

Completed

Manda Hill (Lusaka, Zambia)

43 400

50%*

68,8%*

Completed

West Hills Mall (Accra, Ghana)

27 500

45%

16,8%

Completed

Achimota Mall (Accra, Ghana)

13 000

75%

28,1%

Construction commenced, completion 2015

Kumasi City Mall (Kumasi, Ghana)

27 000

75%

28,1%

Design finalised and pre-letting commenced

Waterfalls project (Lusaka, Zambia)

27 500

25%

9,4%

Land holding

Accra Mall (Accra, Ghana)

15 800

47%

17,6%

Construction to commence over next two years

Manda Hill (Lusaka, Zambia)

15 000

50%*

68,8%

Construction to commence over next two years

West Hills Mall Phase II (Accra, Ghana)

12 000

45%

16,8%

Construction to commence over next year

Existing centres

Developments

Extensions

* Effective 1 July 2014

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cover story

Situated in Cape Town’s prime Century City node, Canal Walk is one of Africa’s premier super-regional shopping centres

In some jurisdictions, such as South Africa, capital gains tax is waived for REITs. The transition to international standards brings enhanced governance, transparency and accountability to the real estate sector. Like their global peers, South African REITs provide investors with regular statutory reporting and are subject to strict oversight.”

On the Hyprop horizon Hyprop Investments Limited’s quality assets, strong contractual lease escalations and sound balance sheet position the company well to weather the impact of a challenging economic environment on consumer spend.

In line with this, the Group continues to up its game by attracting international tenants, spurring on new developments and delving into the African market.

Its assets are dominant in terms of average size, which helps attract new concept and flagship stores, and are preferred locations for international brands. A prime example of this is the recent entry of trendy US youth fashion brand Forever21, which opened its first store on the African continent in September in Hyprop Investments Limited’s leading superregional mall, Canal Walk.

“There is significant demand for affordable, on-trend fashion and we are pleased to introduce yet another African-first fashion debut,” says Prinsloo. “The opening of Forever21 will further entrench Canal Walk as the premier, quality fashion destination in the Western Cape.” Boasting a clean, modern feel, the 1 300m2 Canal Walk store will include 70 000 items of women’s fashion, with seasonal basics

and activewear, the latest Forever21 denim and contemporary ranges, and a wide range of accessories, shoes and lingerie. Forever21 endeavours to inspire customers’ shopping experiences by providing a captivating and exciting environment with a never-ending flow of fun and on-trend fashion at great value.

“Establishing a relationship with leading international fashion brands such as Forever21 aligns with our strategy of driving a vibrant tenant mix and offering shoppers access to popular leading labels,” says Prinsloo.

Hyprop Investments Limited believes in the constant upgrading of its assets. Over the past two years, the Group has undertaken an extensive R930-million redevelopment and refurbishment of Rosebank Mall in Rosebank, Johannesburg. Hyprop Investments Limited has expanded the mall from 36 000m2 to 62 000m2, and the number of stores has increased from 93 to 147. Rosebank Mall now boasts a blend of global and local brands, and established anchor tenants. Anchor tenants include a fullline Woolworths flagship store, a double-level Edgars, Dis-Chem, MRP Sport and Jet. Existing tenants such as Truworths, MRP, Queenspark, Clicks and Foschini were upgraded and expanded. Other new boutique offerings include Pringle, Ben Sherman, Dune, Kurt Geiger, various brands across the Cotton On group and Earthchild.

“This is one of our largest redevelopments to date and aligns with our strategy of enhancing our existing portfolio and investing in dominant, high-quality shopping centres,” says Prinsloo. “We are confident the mall can capitalise on strong footfall in the area:

Rosebank is one of South Africa’s most cosmopolitan urban centres, close to a wide range of world-class amenities, the Gautrain rail node and premium international hotels.”

In terms of its African venture, Hyprop Investments Limited’s strategy is to invest in high-quality shopping centres in sub-Saharan Africa. The pipeline includes the 27 000m² US$110-million Kumasi City Mall in Kumasi, Ghana. This mall will feature 60 line shops and restaurants, with the possibility of further developments, including a hotel. In addition, construction of the 13 000m² Achimota Mall has commenced, and approval for an extension of West Hills Mall in Accra was approved, which will add a further 12 000m² and commence during the next year. Other expansions planned over the next two years include 15 800m² at Accra Mall and an additional 10 000m² at Manda Hill.

In terms of future prospects, Prinsloo says Hyprop Investments Limited expects dividend growth of between 10% and 12% for the full year to June 2015.

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interview

A journey of a thousand miles begins with a single step Apart from investing in strategic properties in the Western Cape, Spear Properties is rallying behind the rejuvenation of some of Cape Town’s key commercial nodes. We speak to Spear Properties’ Managing Director Quintin Rossi about the company’s growth in (and invested focus on) the greater Cape Metropole

By Candace King

Managing Director of Spear Properties Quintin Rossi (Photograph by Mark Pettipher)

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estern Cape-based private equity real estate firm Spear Properties was established in 2012 by three Cape Townbased property professionals – Mike Flax, Abu Varachhia and Quintin Rossi.

We met up with Rossi, Spear Properties’ Managing Director, to talk about the journey thus far. “I guess in life there are moments when you are given a once-in-a-lifetime opportunity – and I would undoubtedly say that this is what was placed before me by Mike and Abu when the idea of establishing Spear Properties was put to me,” he says.

“I have been in love with deal-making for as long as I can remember, whether it was trying to sell office automation equipment in my father’s business in Rustenburg as a little boy or concluding an acquisition of a multimillion-rand distribution centre.”

With an undergraduate degree in law and a postgraduate degree in enterprise management from the University of Cape Town, Rossi’s property career began when he worked as a property broker with leading Cape Town property brokerage company Baker Street Properties, and was tasked with expanding the brokerage business in the northern suburbs of Cape Town.

Rossi recalls how he used to walk door-todoor delivering business cards to receptionists in an effort to attract potential tenants.

Ironically, some of the very same buildings in which he formerly leased space to companies are now owned by Spear Properties.

Several years later, Rossi was employed by Redefine Properties Limited to head up the national leasing portfolio for the newly merged fund after Madison Property Fund Managers and ApexHi were consolidated into Redefine Properties Limited.

During his tenure, he was responsible for the execution of the business’s national leasing strategy – and as Redefine Properties Limited was the JSE’s second-largest property fund, this would be no simple task: at the time, the company owned in excess of 300 properties nationally.

“When my time at Redefine came to an end, I had finally decided to start my own property consulting and leasing business,” says Rossi. “I really put my faith out there that my business would be blessed and would prosper.

“During this time I was approached by many property owners in the greater Cape Town area to join up with them and run their portfolios. But I was hesitant for reasons I did not fully understand at the time – something I would realise later on.”

Rossi says he remembers like it was yesterday the day he got a message on his phone from Mike Flax, asking to meet and discuss the formation of Spear Properties along with Abu Varachhia.

“Before long, the heads of agreement for the acquisition of our first property portfolio was concluded and the honeymoon was over!” he says. “Countless hours were spent on establishing the various business entities, preparing for our Competition Commission filing, setting up bank accounts, and drawing up budgets and forecasts for each property.

This was done so we could fully understand what the future held for each asset based upon the leases that were in place over the properties at the time – and, most importantly, to get the banks to finance our new venture…

I refer to this part of the journey as the ‘baptism of fire’.”

Spear Properties’ sharp point Fast-forward to 2014, the Spear Properties investment portfolio boasts 19 properties in a well-balanced mix – 45% industrial, 21% commercial, 21% retail and 13% hospitality.

Why focus solely on the Western Cape property market? “In Afrikaans, there is a saying, ‘ver van jou goed, naby aan jou skade’ – which translates to: if your assets are far away from you, the damage to those assets would be close by,” says Rossi. “I personally like to visit every building to maintain and monitor the assets, which bodes well for improving our portfolio, and I really enjoy interacting with our tenants, which also gives them a sense of comfort. They know I’m easily accessible when required.”

To date, Spear Properties boasts a R980million property portfolio with a 99,5% occupancy level on just about 104 000m² (GLA). Of these properties, 42% are being let to single tenants and 58% to multiple tenants, ranging from JSE-listed entities to small and medium enterprises.

The evenly distributed geographical spread of the portfolio enables Spear Properties to

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Situated on the popular Edward Street in Tygervalley, the 4 261m² (GLA) Bloemhof Building services a mix of retail and office users ranging from small, medium and large businesses situated in the Cape Town northern suburbs

enjoy a broader market catchment rather than being overly represented in a specific area. The portfolio presents stable income over the short, medium and long term, with a number of redevelopment opportunities that will allow the organic growth and increase income in the portfolio.

Spearheading transformation Spear Properties is actively involved in the regeneration of the Cape Town nodes of Salt River and Tygervalley – areas that are experiencing increased urban challenges as a result of various service shortcomings from law enforcement and the local city council.

Spear Properties contributed to the establishment of the now approved and operational Salt River Business Improvement District (BID) and is currently involved in the proposed establishment of the Greater Tygervalley Commercial Special Rated Area (SRA). “We see the current redevelopment of properties such as the Pals and Cornerstone buildings as well as the Upper Eastside development in Salt River as an improvement to the area, and we are of the view that the established BID adds greater credibility to the area, making it ripe for investment,” says Rossi.

“We are currently formulating a Greater Tygervalley Commercial SRA, which will uplift the area, and bring about additional security and public area cleaning services. The implementation of SRAs improves nodes and stimulates the economy.”

In August 2012, several properties located on Edward Street, Tygervalley were acquired

by Spear Properties in an effort to improve the properties for tenants and thus rejuvenate this economic node back to its former glory as an office and retail destination hot spot. Along with other property owners, Rossi is working closely with the City of Cape Town to establish the Tygervalley Commercial SRA, an initiative

that has already been kick-started, in which the City will allow the establishment of a non-profit organisation that will work to introduce improved security and public area cleaning features to the public areas in the proposed district.

Although the initiative is still in its preliminary phase, Spear Properties has implemented additional manned security measures as well as IP CCTV cameras that can be monitored off-site. A dedicated landscaper appointed by Spear Properties has also been actively tending to public areas directly in front of the company’s assets to ensure they remain clean and well-tended until the Tygervalley Commercial SRA is established.

Rossi notes that this project boasts a strong social responsibility aspect, which is required by the City of Cape Town. The project will assist in the upliftment of homeless individuals by training them and providing them with certain forms of employment.

Future endeavours While Spear Properties is eagerly engaging with urban renewal projects, the firm is also contributing towards the Western Cape’s tourism and hospitality industry through its ownership and management of the DoubleTree

by Hilton Hotel at the Upper Eastside in Salt River, Cape Town where Spear Properties’ offices are based.

“As Spear’s very first hospitality asset, the DoubleTree by Hilton Hotel is the first DoubleTree (a US hotel chain that is part of Hilton Worldwide Group) hotel of its kind in sub-Saharan Africa,” says Rossi. “We have placed this asset on the international stage by entering into a long-term franchise agreement with the Hilton Worldwide Group. Historically, the hotel was known as The Upper Eastside Hotel, and was predominantly frequented by business travellers and conference venue users.

The latter is still the case – but in aligning ourselves with an international brand such as Hilton, we have seen an increase in foreign – especially European and American – guests over periods that previously didn’t yield acceptable occupancies.

“This, in my view, can be attributed directly to the incredible value that the Hilton Honours Programme offers, as well as the sheer number of Hilton Honours members worldwide (which is in the region of 27-million). Furthermore, there has been marked revenue-per-room growth, and the conference aspect has stimulated further global interest.

“We are very satisfied with the performance of this asset, which we have benefited from as a result of the positive media coverage that Cape Town has received. The New York Times rated Cape Town as a top global destination for international travellers.

“In light of employment up-skilling, the hotel boasts 150 incredible staff members, which has a positive indirect impact on the development and expansion of the Western Cape economy.”

Looking towards the future of Spear Properties, Rossi says the firm’s strategies are well-aligned to continue focusing on creating value and ensuring that long-term tenant retention and prudent asset investment is maintained.

“From an investment perspective, we need to tick all the boxes,” he says. “We are not in a hurry to expand for the sake of it – we have strict investment criteria. Given the variety of social, economic and financial challenges being faced in South Africa, we need to take this into account when deciding on assets and growth.”

He says that perhaps a future listing is on the cards for Spear Properties – but for the short-to-medium term, he is determined to grow the business and its assets to ensure that any future listing makes a meaningful impact on the JSE.

Manhattan Plaza is located on Edward Street in Tygervalley, and boasts 4 973m² of GLA, comprising 3 267m² of office and 1 706m² of retail space SOUTH AFRICAN PROPERTY REVIEW

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GBCSA Convention

Africa on the green move Having showcased the green movement in its entirety at this year’s Green Building Council of South Africa Convention, it’s evident that greening and sustainability in Africa is making headway – a sure sign that “it’s time” for the continent

By Candace King

R

egarded as Africa’s premier green building event, the seventh annual Green Building Council of South Africa (GBCSA) Convention placed the African continent under the green spotlight, highlighting all the sustainable efforts being made by the property industry’s players across the scale.

Hosted at the Cape Town International Convention Centre in the Mother City and principally sponsored by Nedbank Corporate Property Finance, the GBCSA Convention was attended by more than 600 property, architecture and sustainability professionals as well as local and international delegates eager to indulge in everything green.

This year’s Convention was angled around Africa as the latest frontier market, highlighting greening and sustainability in Africa. The theme, “It’s time for Africa: Bringing it home”, unpacked the idea of developing sustainable buildings as an answer to Africa’s infrastructure challenges and as a response to its growing and complex cities.

“Africa has one of the highest urbanisation rates in the world, which puts pressure on the infrastructure of its cities and presents huge changes for city planners,” said Brian Wilkinson, Chief Executive Officer of the GBCSA. “Greener and more sustainable building in all sectors of the property industry is seen as one of the ways to help mitigate some of the risks to the environment and resources.

FROM LEFT Jon Duncan, Head of Sustainability Research at Old Mutual Investment Group; Phil Barttram, Vice President at MSCI South Africa; and Brian Wilkinson, Chief Executive Officer of the Green Building Council of South Africa at the announcement of the IPD South Africa Annual Green Property Indicators research results

“It is estimated that, at present, buildings contribute as much as one-third of the total global greenhouse gas emissions. Thus developing greener buildings in Africa is especially important at this crucial time in the continent’s development. Africa has to show leadership in green building and sustainable development. There has never been a more important time than now to bring home the benefits of green building in Africa.”

Wilkinson, along with GBCSA Programme Manager Jo Anderson, noted that the green building movement is gaining momentum on the continent, with the development of fully established Green Building Councils in Namibia, Ghana, Kenya, Nigeria and Mauritius.

There are also early signs of such councils initiating in Zimbabwe, Tanzania, Zambia, Malawi and Botswana.

The Convention’s line-up of speakers featured South African and global thoughtleaders, who delved into green building as well as environmental sustainability in the built environment.

Green announcements

FROM LEFT Stefan Janser of the National Home Builder Registration Council (NHBRC); Brian Wilkinson, Chief Executive Officer of the Green Building Council of South Africa; NHBRC Chief Executive Officer Jeffrey Mahachi; and Sabin Basnyat of the International Finance Corporation at the launch of the EDGE rating system

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Apart from showcasing the latest green building topics, technologies and trends, the GBCSA also made several major announcements during the Convention, including the launch of the IPD/GBCSA Sustainability Index and the International Finance Corporation (IFC) EDGE residential rating tool.

Supporting the case for green buildings, the IPD South Africa Annual Green Property Indicators were released at the Convention, a research first for South Africa. This research shows that energy-efficient buildings in 2013 had greater occupancy levels, generated higher net income per

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GBCSA Convention square metre and delivered higher net income growth, compared with their less efficient counterparts.

For the year ending December 2013, properties with top-quartile energy efficiency delivered a total return of 15,9%, a remarkable 170bps above the balance of the sample, which delivered a 14,2% total return. While the income returns achieved by the two sets of properties were identical at 7,8%, the energy-efficient properties recorded a higher capital growth of 8,1%.

“This outperformance was underpinned by a lower discount rate, driven by a superior occupancy rate and net income growth,” said Phil Barttram, the Vice President at MSCI South Africa.

In partnership with World Bank Group member IFC and local roll-out partners, the National Home Builder Registration Council (NHBRC), the GBCSA announced the launch of a new green building certification programme – the Excellence in Design for Greater Efficiencies (EDGE) rating system, which will be utilised for homes in South Africa.

The aim of EDGE is to help facilitate a transformation of the property sector

in rapidly urbanising countries by influencing design considerations. To achieve the EDGE standard, minimum savings of 20% energy, water and embodied energy in materials must be met.

“The launch of EDGE in South Africa is a hugely exciting development that affords us an opportunity to benchmark ourselves against our international counterparts who have already introduced services related to energy efficiency and green buildings,” said Dr Jeffrey Mahachi, NHBRC’s Head of Centre for Research and Housing Innovation. “This will also benefit housing consumers, builders and developers because it will transform how homes are designed and built in the country.”

“The goal of IFC’s EDGE programme is to help build capacity for developers, banks and governments to mainstream resourceefficient buildings in rapidly growing economies around the world,” said Marcene Broadwater, IFC’s Global Head of Climate Strategy and Business Development.

EDGE will undergo final adjustments with some industry input and review, before being released to a few pilot projects later this year and launched to the market early in 2015.

SA’s green stars honoured During the GBCSA Convention, South Africa’s top-rated Green Star buildings and noteworthy green building professionals were announced at the Green Star Leadership Awards 2014. This year’s winners are: • • • •

Highest Rated Building Award: No.1 Silo at the V&A Waterfront Best Quality Submission Award: Atrium on 5th at Sandton City Established Green Star Award: Chilu Lombe of Solid Green Consulting Rising Green Star Award: Sally Misplon of Misplon Green Building Consulting

FROM LEFT David Green, Chief Executive Officer of the V&A Waterfront; Faieda Jacobs, a Green Building Council of South Africa (GBCSA) board member; Brian Wilkinson, Chief Executive Officer of the GBCSA; and Mark Noble of the V&A Waterfront’s No.1 Silo development at the Green Star Leadership Awards 2014. No.1 Silo was the winner of the Highest Rated Building Award SOUTH AFRICAN PROPERTY REVIEW

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he end am-S nable m i iS Com 4 Afr Susta re 201 rd for tectu a hi Aw Arc at t IA editorial ed A

Monaghan Farm:

not your average eco-estate

Monaghan Farm is a truly remarkable agri-village that has surpassed the eco-estate title

T

he 510 hectare Monaghan Farm is situated in Lanseria, and offers an alternative to the norm in estate living and property development in Gauteng with its principles of sustainability. It embodies the freedom of farm living with all the trappings of a modern, connected and self-aware environment. As a successful high-end development, it has many interesting case studies for the property development portfolio.

Monaghan Farm has been designed with a density of one residential unit per two hectares and the principle that the farm will only ever consist of 300 properties with an average size of 4 500m². When the property is completely developed, the footprint of all the buildings combined will occupy only three percent of the farm.

Just over 400 hectares, which amounts to 78% of the property, will be common open space – a vast contrast to the current norm of high-density and high-volume “packing” that is seen in most urban developments, and even most other eco-developments.

“Of the Monaghan Farm stock released to market, 60% has already been sold,” says Chandre Buys, Development Manager of Monaghan Farm. “Once fully developed, Monaghan will consist of six unique villages.

Currently there are three villages that have been very well received when released for sale. The present forecast sees the remaining villages and other amenities being completed within three years.”

Monaghan Farm is a working organic farm built around the principles of sustainability, which promises a better lifestyle – one cushioned by space and nature. The entire farm belongs to the residents: this includes

52

the farming areas, the gardens, the trails, the tree houses and the outdoor decks along the riverbank.

This community ownership extends to the facilities of the organic farm, the Montessori School and popular restaurant, as well as the Curro School that’s currently being developed.

Plans for further facilities include a gym, stables and a business centre.

Respect for the environment pervades all aspects of life here. Rain-water harvesting, energy efficiency, recycling and positive relationships with the surrounding communities all contribute to a responsible and informed way of living Monaghan Farm is a pristine haven of indigenous bush and beautiful agri-village land. Respect for the environment pervades all aspects of life here. Rain-water harvesting, energy efficiency, recycling and positive relationships with the surrounding communities all contribute to a responsible and informed way of living.

These practices are part of the Monaghan Farm lifestyle, along with the approximate five hectares of organic gardens that grow cut flowers, vegetables, fruit and herbs to be delivered locally to residents, reinforced

by Monaghan Farm’s BCS certification. The large herd of Nguni cattle that wanders the

hillside provides natural fertiliser and control of the long grasses.

Each residence is spaciously set into the natural veld, with pockets of indigenous bush hiding the residences from one another.

Boundary walls are not permitted, which adds to the free-flowing layout of the land, and houses are a mandated single-storey so as not to impede views.

The desired effect is of muted architecture that is one with the landscape, with natural colours and materials being utilised. Solar, PV panels, geothermal, low-voltage lighting and heat pumps are just a few of the energysaving initiatives that have been put in place in every home, along with a rain-water harvesting system of a minimum of 20 000 litres per property.

Many of the houses have been constructed with rammed-earth – a technique of building walls using natural raw materials. This is an age-old building method that has seen a revival in recent years as people seek more sustainable ways of building.

Rammed-earth walls are easily built, non-combustible, thermally insulated and durable. Low-carbon building techniques include light-steel-frame construction and bricks being manufactured on site. As air conditioning is not permitted, residences are built facing the north, with passive solar design, natural light and cross aeration.

Most homes have wood-burning fire stoves, while solar water-born under-floor heating and photovoltaic panels are used to create electricity for many of the houses.

These remarkable features now mean that several homes are feeding electricity back into the national grid.

SOUTH AFRICAN PROPERTY REVIEW

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editorial SAPOA INNOVATIVE EXCELLENCE AWARDS 2013 WINNER - HERITAGE DEVELOPMENTS : FREEDOM PARK PHASE 2

1998 - 2013

Established as MMA Architects in 1998

Celebrating 17 years in Practice

BBBEE Rated Company Level 2 AA+

Member of the Green Building Council

WWW.MMASTUDIO.CO.ZA suite 2b first floor 8 arnold road rosebank joburg tel +27(0)11 880 1170 cell +27(0)72 591 1752

Welcome to the future – a future of Mwangaza We are all writing a part of the script which tomorrow’s society will play out. At Royal HaskoningDHV we would like the title to read: ‘Welcome to the future’ - and for our chapter in that script to read ‘Mwangaza’ - a Swahili word which means ‘light’.

Together with our partners and clients we consider how we can create a welcoming future - developing efficient and smart living.

Whether switching on a light, travelling to work or drinking a clean glass of water - the solutions and work of our engineers surround us, making lives better and brighter. Our work contributes to the sustainable development of communities. Together, we deliver innovative sustainable answers to today’s challenges.

Royal HaskoningDHV is an independent, international engineering and project management consultancy.

royalhaskoningdhv.com/za SOUTH AFRICAN PROPERTY REVIEW

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people in profile

André Crouse

Cassius Flayser

Haroon Jeena

Property Asset Manager

Commercial Manager

Group Executive: Commercial

OR Tambo International Airport

Regional Airports

Airports Company South Africa

André Crouse holds a BScQs degree from the University of Pretoria. He worked as a professional quantity surveyor for years before gaining experience as a project manager with Sanlam Properties.

Crouse joined Airports Company South Africa as Divisional Head for Real Estate Investments, and grew the property portfolio by R458-million in the early years of the company. He further achieved a diploma in financial management, underwritten by the Association of Chartered Certified Accountants in the UK, and is currently Property Asset Manager at OR Tambo International Airport, managing a portfolio of about R4-billion. Amongst other duties, he also serves on the Capex Committee and the Executive Committee of OR Tambo International Airport.

Constant recognition of aviation regulations is required when managing commercial property at an airport. New developments may in no way interfere with the flight path of an aircraft, or taxiing, departing or landing at the airport. In addition to this, navigational and air traffic control systems and operations may not be compromised.

All this needs to be carefully considered throughout planning and development.

Because of the diversity of entities that require commercial space at the airport, benchmarking the property presents challenges, as the entities range from passengers, meeters and greeters, and international airlines and service providers to government agencies – each with its own set of specific requirements.

Being a port of entry into our country for business and leisure travellers alike, Airports Company South Africa’s vision is to be a world-leading airport business, underpinned by its PRIDE values of passion, results, integrity, diversity and excellence).

Cassius Flayser holds a BCom in Accounting and Shopping Centre Management. He gained valuable experience within the property management industry as a financial manager, facilities manager and project manager, before joining Airports Company South Africa in 2009 as an assistant manager in retail at OR Tambo International Airport.

He currently holds the position of Commercial Manager for Regional Airports, managing a mixed property portfolio consisting of property management and developments, retail and car hire.

Airports Company South Africa’s property development portfolio consists of more than 1 000ha of prime land available for commercial property development, focusing mainly on sustainable development projects to enhance the node of aerotropolis development. Airports offer connectivity, security and infrastructure, and have become important drivers of local economic development. Airports Company South Africa is in a unique position in that airports are evolving from mere transportation facilities into large commercial enterprises, with high economic value added by logistics, tourism and service industries.

The biggest challenges facing Airports Company South Africa’s development include the slowdown in the economy, the advancement of technology (which impacts on growth) and insufficient capacity of electricity.

The industry is not accelerating development of previously disadvantaged people in terms of occupying senior positions.

Airports Company South Africa continuously invests in its important IP people and offers many opportunities for career advancement.

It is Airports Company South Africa’s vision to become a world-leading airport business by creating an efficient and customer-based experience.

Haroon Jeena passed his CA board exam in 1987 and moved into the commerce industry in 1990. He spent eight years with Anglo American Property Services, where he was responsible for two listed properties. He holds a higher diploma in tax law and completed his MCom in Financial Management.

Jeena joined Airports Company South Africa in 1999, progressing to Group Manager: Property in 2003 and Group Executive: Commercial in 2008. Property is one of the many businesses supporting Airports Company South Africa’s revenue.

The development of a property brand within an airports company requires consistent communication and education.

Airports Company South Africa has an investment property portfolio of non-core property investments of R3-billion; this is to be substantially enhanced with more than 1 000ha of prime land available for commercial property across nine airports. The development options (including the funding plan) are flexible, and provide opportunity for self-development, joint ventures and land leases. Every opportunity must be made available on an open, fair, transparent, equitable and commercial basis. Every investment must meet equity targets and create shareholder value through income and capital growth. Furthermore, transformation must be included in the evaluation process.

Airports Company South Africa has diverse investments around the country, from hotels, office accommodation and warehousing to distribution centres, filling stations and cargo handling. The company’s investment philosophy is to create the highest and best use, and its flexibility to accommodate developer and tenant requests has resulted in the growth of the portfolio to more than R550-million in gross rentals.

The availability of land, low land-holding cost and low cost of capital is supplemented by superior locations of the airport and connectivity through road, rail and air transport.

t: +27 (0)11 921 6990 Andre.Crouse@airports.co.za www.airports.co.za

t: +27 (0)11 723 2749 Cassius.Flayser@airports.co.za www.airports.co.za

t: +27 (0)11 726 1440 Haroon.Jeena@airports.co.za www.airports.co.za

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David Wood Regional Property Manager Cape Town International Airport

David Wood holds a BSc Hons degree in Quantity Surveying and Construction Economics from Salford University in the UK. He is a registered quantity surveyor, and a member of the Royal Institution of Chartered Surveyors.

With noteworthy experience in the commercial property sector, Wood has been with Airports Company South Africa for 17 years.

Airports Company South Africa operates in a unique property environment. It is highly regulated, yet subject to competitive commercial objectives. This creates challenges and excitement to marry both public and private worlds, as well as the commercial and regulated landscapes in its quest to benefit all its extended stakeholders.

Airports Company South Africa’s earmarked land is highly suitable for development because it is well located, well connected, flat and secure, with services available in close proximity or on its boundary.

Its property business involves the optimisation of the non-aeronautical existing and new investment property portfolios to drive sustainable value creation and annuity income for Airports Company South Africa’s stakeholders by value creation from state-owned development land.

Since 1998, property income at Cape Town International Airport has grown from R2-million to approximately R130-million in 2014.

Airports Company South Africa is a forward-thinking organisation, with a strong focus on transformation of previously disadvantaged members of society. Airports are major generators of direct and indirect employment – they create business opportunities and provide the core of development nodes.

t: +27 (0)21 937 1331 David.Wood@airports.co.za www.airports.co.za

st.

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E

people in profile

THE REAL IN REAL ESTATE

property, people, purpose & passion

THE ANNUAL SAPOA INTERNATIONAL

CONVENTION AND PROPERTY EXHIBITION

DURBAN - ICC 19 - 21 MAY 2015

e v a S

! e t a d the Enquiries: Jane Padayachee: t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 e: marketingmanager@sapoa.org.za

www.sapoaconvention.co.za SOUTH AFRICAN PROPERTY REVIEW

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2014/10/10 PMPM 2014/10/104:31 4:08

people in profile

The STANLIB recipe

With a passion for focused investing, STANLIB sticks to its formula of successful investment management

By Candace King

Amelia Beattie, STANLIB’s Chief Investment Officer: Direct Property Investments, and SAPOA President

M

ulti-specialist investment company STANLIB is passionate about the success of its clients’ investments. With a vast investment offering, STANLIB believes in the collaboration of diversity and individual focus, which create sustainable growth and excellence – two key aspects that embody STANLIB’s business approach and ethical operation.

Managing and administering more than R561-billion (as at 30 June 2014) assets for more than 400 000 retail and institutional clients, STANLIB is serious about investment and expertise, with more than 1 000 years of collective experience in its investment team.

With a presence in eight African countries, STANLIB is also serious about investment in the rest of the African continent.

STANLIB was born in 2002 when Liberty Life and Standard Bank merged their asset management, wealth management and unit trust interests. To date, STANLIB is 100% owned by Liberty Life.

Within its multi-specialist franchise model, the STANLIB Direct Property Investment franchise (SDPI) is committed to delivering long-term inflation-beating returns to investors through a quality real estate portfolio. Its investment purpose is making real estate accessible sustainably.

“STANLIB Direct Property Investment’s investment philosophy is to manage assets for investors who boast a long-term investment appetite in quality assets in the growing African continent,” says STANLIB’s Chief Investment Officer: Direct Property

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Investments and current SAPOA President Amelia Beattie.

SDPI offers exposure to direct property assets that are largely uncorrelated with listed markets. Based on sound research, the SDPI team invests in quality real estate in economically growing nodes on the African continent. SDPI boasts three main focus areas: the Liberty Property Portfolio, the Pan Africa Development Fund and the Third Party Portfolio.

“STANLIB Direct Property Investment is responsible for several portfolios that boast different investment criteria,” explains Alex Phakathi, STANLIB’s Liberty Property Portfolio Fund Manager and SAPOA Past President. “The Liberty Property Portfolio is a liability-backed portfolio that provides inflation-beating returns over the long term for investors. The portfolio is underpinned by large property assets such as Sandton City.”

“Part of the Pan African Portfolio, the Africa Property Development Fund is a US$150million fund domiciled in Mauritius,” says Kgaogelo Mamabolo, STANLIB Africa Direct Property Development Asset Manager and current Chair of the SAPOA Africa Focus Committee as a National Councillor. “The fund is involved in developments in several key African markets, including Nigeria, Ghana and Kenya. It boasts a typical private equity profile.”

Currently a poised market, the rest of Africa is attractive but not easy to operate in, says Mamabolo. “One needs to be aware of the difficulties when operating in Africa,” she says.

“You need to build partnerships and skills locally and become entrenched in the local environment to understand it. Most importantly, be aware of the differences in each country.”

“Demand in Africa continues to outweigh the supply,” Beattie says. “Africa is a place of opportunity to change lives through property.

We need to build high-quality investable opportunities from scratch, and ensure this for longevity in Africa for future investment”.

On the topic of longevity, STANLIB will continue to build on its sterling track record of quality returns and portfolio management.

“Key to running this business are the people who work in it,” says Phakathi. “The Liberty Property Portfolio is run by a small, dynamic team focused on driving value in the portfolio – this is the STANLIB recipe for success.”

“On our future prospects, transformation and sustainably will remain key,” says Beattie.

“We live and die by what our customers want, and we will continue to strive to be innovative and provide returns for our investors – which is ultimately why we exist.”

Alex Phakathi, STANLIB’s Liberty Property Portfolio Fund Manager, and SAPOA Past President

Kgaogelo Mamabolo, STANLIB Africa Direct Property Development Asset Manager and current Chair of the SAPOA Africa Focus Committee as a National Councillor

t: +27 (0)11 448 5000 f: +27 (0)86 010 5395 w: www.stanlib.com

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statistics

Banking on prime results “Stability Amid Uncertainty South Africa – Major Banks Analysis”: PwC Report, September 2014

A

ccording to a recent analysis report

by PricewaterhouseCoopers (PwC) of South Africa’s major banks’ results for the reporting period ended 30 June 2014, the country’s leading banks posted admirable results for the current review period in light of current local and global macroeconomic uncertainty.

Titled “Stability Amid Uncertainty South Africa – Major Banks Analysis”, the PwC analysis report released in September 2014 presents the combined local currency results of South Africa’s major banks: Barclays Africa Group, FirstRand, Nedbank and Standard Bank.

The report highlights that the analysis is unique in that it aims to aggregate the results of the major banks, with a view to identifying common trends and issues currently shaping the financial-services landscape.

Providing the context for the operating landscape underpinning the banks’ financial results, the analysis sheds light on one of the key themes that characterised the first six months of 2014, which was the mixed and varied sentiment associated with the global and domestic economic landscape.

On the local front, the operating environment for the major banks for the first half of 2014 remained difficult and considerably volatile due to macroeconomic uncertainty, which has taken its toll on local business confidence.

The analysis states that, “While it appears that the outlook for the advanced economies seems firmer, the domestic economic situation appears more fragile and uncertain.

What is clear, however, is that global growth considerations, while expected to continue along a recovery path, are expected to proceed at an uneven pace, and continue to be impacted by a number of risk scenarios that could negatively impact the pace of global growth.”

Despite the current unstable economic situation, the major banks seemed to ride the crest of economic uncertainty by reporting laudable results.

The PwC analysis report states that, collectively, the banks reported a combined increase of 13,1% in headline earnings to R27,8-billion against the comparable period (1H14 vs 1H13). The average combined return on equity was reported at 17,1%, compared

to 16,2% at 1H13. Further results revealed that bad debt expenses were down by 9,6%, while operating expenses were up by 9,8%. The total operating income was up 9,5%.

“While all the banks have highlighted cautious optimism over their short-term

prospects, the combined results for the current review period continue to reflect the strength of the South African banking sector and the resilience of our banks’ ability to generate earnings, despite the subdued operating environment,” says the report.

Figure 1.1: Combined income statement of the major banks

RM

ROE

150 000

18% 16%

100 000

14% 12%

50 000

10%

0

8% 6%

-50 000

4%

-100 000

2% 0%

-150 000 NII

NIR

Opex

Impairment

Other

Tax

ROE

Source: PwC analysis

Figure 1.2: Balance of payments – current and financial account (including unrecorded and special drawing right (SDR) transactions)

120 100 80 60 40 20 0 -20

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2011 2012 2013 2014

-40 -60 -80

Financial account

Yield on R157

Source: SARB SOUTH AFRICAN PROPERTY REVIEW

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SAPOA retail trends report

Retail property performance While the South African retail sector appears to be a top performer that’s raking in robust total returns, the market is experiencing pockets of slow to negative growth

By Denise Mhlanga Photographs Michael Glenister (Craig Smith photo supplied)

O

Stan Garrun, Executive Director and Head of IPD South Africa

ften we hear talk of consumers being under financial strain – yet the parking lots of centres are jam-packed with vehicles and the mall corridors are full of milling visitors always seemingly shopping, eating out or watching movies.

The recently released SAPOA Retail Trends Report Q2 2014 shows that, for the year ending June 2014, shopping centres in the Investment Property Databank (IPD) retail sample recorded a year-on-year increase of 4,6% in annualised trading density.

However, in real terms, this translates into marginally negative growth, according to the report.

Stan Garrun, Executive Director and Head of IPD South Africa, explains that vacancy levels have been steadily rising over the past five years but remain below three percent in centres larger than 25 000m², while smaller centres have seen vacancy rates rise significantly over the past six months with neighbourhood centres hit hard in the same period.

Furthermore, he notes that gross rentals continue to grow faster than sales, which have seen retailers’ cost of occupancy increase – currently the highest in the 10-year history of the report series and almost exclusively driven by higher administered costs.

Foot counts recorded at the end of June 2014 were unchanged compared to a year before, symptomatic of the current tough trading environment. In conjunction with a higher nominal trading density, this has resulted in a higher spend per head compared to the year before, according to the SAPOA Retail Trends Report.

Retail sector performance According to the IPD South Africa Biannual Property Indicator, the South African property sector delivered an improved 7,4% total return for the first six months in 2014 (6,5% in December 2013).

The retail sector was the second-bestperforming sector (first is industrial with 10%), recording 7,4% overall return, of

Figure 1:

Annualised Trading Density Growth Year on year till June 2014 Super Regionals

Regionals

Small Regionals

Community

Neighbourhood

All Retail

25,0%

20,0%

According to the IPD South Africa Biannual Property Indicator, the South African property sector delivered an improved 7,4% total return for the first six months in 2014 (6,5% in December 2013) 58

15,0%

10,0%

5,0%

4,6%

0,0%

-5,0%

04

05

06

07

08

09

10

11

12

13

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SAPOA retail trends report which 3,4% was capital growth and four percent income return.

IPD data shows that, despite underperforming in relation to the industrial sector during the six months under review, the retail sector recorded a total return 110bps above the 6,3% recorded for the last six months of 2013.

Super-regional and neighbourhood shopping centres show the lowest capital value growth, recording 2,1%; in terms of base rental growth, super-regional centres continued to deliver robust growth of eight percent.

Meanwhile, regional shopping centres posted healthy base rental growth of 4,6% over the six months, although this does not yet reflect in strengthening capital value growth or returns.

According to the SAPOA Retail Trends Report, while super regional centres keep growing at -10% year on year, all other retail segments recorded nominal growth of sub -5%.

Regional and community shopping centres saw a sharp slowdown in growth during the last quarter, with neighbourhood shopping centres still the worst-performing segment at 1,3% year on year, despite returning its first positive quarter of growth since Q3 2013.

Large shopping centres have outperformed over the past 10 years, aided by nodal dominance, a larger variety of categories and tenants, and a larger boost from seasonal trade.

Returns and trading densities Retail total returns are slightly up but essentially moving sideways – to be expected in the recovery phase of the cycle.

“Property returns follow GDP growth in boom times; in recovery phase, returns lag while excess supply is absorbed,” says Garrun.

The SAPOA Retail Trends Report shows that, over the past 10 years, super-regional sale volumes didn’t hold up significantly better than other retail segments. But in good economic times – when the macroeconomic environment is supportive of increasing consumer spending growth – super-regional centres seem to benefit more than other retail segments.

In nominal terms, the super-regional trading density is currently 35% higher than it was at the height of the consumer cycle in 2007. In real terms, trading densities are currently eight percent lower than in 2007, meaning that, on average, retailers are selling lower volumes of products compared to the height of the consumer boom.

This could negatively impact retail margins and landlords’ potential for rental upside through likely retailer price markdowns and higher inventory holdings costs, according to the SAPOA Retail Trends Report.

In nominal terms, the super-regional trading density is currently 35% higher than it was at the height of the consumer cycle in 2007. In real terms, trading densities are currently eight percent lower than in 2007

Consumers Garrun notes that consumers are under financial strain, especially at the lower end of the market – household debt as a percentage of income is still high at 73,5%.

Figure 2:

10 Year Spread of Annualised Trading Density Super regional centres outperformed in upcycle Upside

8,0%

6,0%

Interquartile range

Downside

6,2% 5,4%

4,0%

2,5%

2,0%

2,4%

0,0% -2,6%

-2,6%

Super Regionals

Regionals

-1,8% -3,3%

-2,0%

-4,0%

Small Regionals

Community

SOUTH AFRICAN PROPERTY REVIEW

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2014/10/14 9:41 AM

SAPOA retail trends report The Bureau for Economic Research (BER) Q3 2014 report shows that while growth in real consumer spending is expected to pick up going forward, a meaningful acceleration is not expected.

Real consumer spending was about 1,6% year on year in 2009 and 4,5% year on year in 2010/2011. Growth has moderated steadily, recording 1,9% year on year in the second half of 2014.

Retail sales volume growth slowed from 6,2% year on year in 2011 to 1,5% year on year in Q2 2014.

BER notes that, over this period, lacklustre job creation, rising prices, slowing credit growth, low consumer confidence levels and rising interest rates have steadily eroded consumers’ spending power and weighed on overall consumption spending.

Retail now and beyond Craig Smith, Portfolio Manager and Property Analyst at STANLIB

According to Craig Smith, Portfolio Manager and Property Analyst at STANLIB, the retail property market in South Africa is becoming more bifurcated.

Smith explains that shopping centres that do not possess the features of dominance or convenience are struggling to grow turnover.

Rental growth at these shopping centres is therefore very limited as retailers are not desperate to have a presence there.

Shopping centres that are dominant and/ or convenient are still managing to grow turnover at or ahead of inflation, and are generally experiencing strong demand from retailers, which ultimately leads to rental growth, he explains.

“Retailers are still growing their footprint at an accelerated pace relative to the recent past,” he says. “But, in my view, these retailers are likely to become more and more circumspect about where they chose to maintain a physical presence.”

He also says they continue to expect international retailers to enter or announce their entry into the South African retail property market. This is, naturally, exciting news for the South African consumers because it ultimately provides them with more choice.

TOP ROW, FROM LEFT Peter Parfitt (Quadrant Properties) with Rafael Zabow (Fountainhead Property Trust); Pieter Niehaus (Norton Rose Fulbright SA); Rob McMullen (Absa) and Tracey Rebello (Absa) BOTTOM ROW, FROM LEFT Tana Schultze (Woolworths) and Richard O’Sullivan (Retail Africa) with Felicia Hansen (Woolworths); Louise Fredericks (Retail Network Services), Dionne Rex (Retail Network Services) and Este du Toit (Retail Network Services) with Nicholas Shave (Shave Industrials (Pty) Ltd) and Ryan Kalin (Cochrane International)

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Port Elizabeth golf day

Gauteng golf day

First place winning team

Longest Drive winner

Nearest To The Pin winner

Mark Bakker, SAPOA Eastern Cape Port Elizabeth Regional Councillor

Second place team

Third place team

Absa lucky draw prize winner SOUTH AFRICAN PROPERTY REVIEW

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SAPOA events

SAPOA’s upcoming national events 2014 November Region

Date

Event

Gauteng

4 to 7 November 2014

ICPP Training Course

Gauteng

6 November 2014

Legal Power Hour

KwaZulu-Natal

11 November 2014

Gala Dinner

Gauteng

12 and 13 November 2014

NSMP Training Course

Gauteng

13 November 2014

Networking Evening

Gauteng

14 November 2014

Brokers’ Seminar Day 2

Gauteng

17 to 21 November 2014

FMP & IAMP Training Courses

Polokwane

20 November 2014

Council Meeting Lowveld

Gauteng

20 November 2014

Brokers and Legal Update

Western Cape

21 November 2014

Delivering the Property Development Workshop

Polokwane

25 November 2014

Gala Dinner

Measuring over breakfast Held in Johannesburg on 5 September 2014, the Method for Measuring Floor Areas (MOMFA) Breakfast

Tony Gebhardt, owner of Hamlyn Gebhardt Quantity Surveyors

62

was an intensive and insightful session facilitated

by Tony Gebhardt, owner of Hamlyn Gebhardt Quantity Surveyors.

In addition to providing a background for the development and initiation of the MOMFA document in South Africa, Gebhardt covered the basics of how best property practitioners can achieve accurate area measurements of their buildings.

“Initiated in 2005, the development of the MOMFA document was based on listening to the market as well as global best practice, which the document aims to marry with South African practices,” said Gebhardt. “The method of measurement differentiates in various countries. We were able to compare what South Africa is doing with other

markets – and there were some major variations.

“We needed to establish a bridging document in order to directly compare one building in one country with another. What we learnt was that South Africa’s method is quite robust.”

Gebhardt noted that a good “rule of thumb” with the document is to use the office measurement definition, as its principle can be applied to the rest of the sectors. He pointed out that this document is just a recommendation, it’s not law. However, it is professionally backed

by SAPOA. Gebhardt also noted that when measuring area, there will be slight differences between different parties who each record a measurement.

The document requires interpretation because buildings differ in terms of design, he said.

“Americans believe that an accurate figure is within two percent – which we don’t agree with,” he said. “We state that accurate measurement is within one square metre.

It’s not about physical area, it’s about reaching an agreement in numbers.”

Based on the questions and comments raised during the session, there remains concern and confusion by the industry on accurate measuring. “There’s no sign that anything is going to change drastically in the document any time soon,” said Gebhardt.

“However, there are slight tweaks and errors that need to be addressed.”

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SAPOA events

Successful negotiation in KZN

T

he Negotiation Skills Master Class Programme that took place in Durban on 3 and 4 September 2014 was a great success, says Faith Best, programme facilitator from communication skills training company Corporate Intelligence Training.

“It was an exhilarating experience to facilitate this group of learners on their journey to a deeper understanding of

how negotiations interact with human behaviour and perceptions,” says Best. “The learners expressed their surprise and delight at not being subjected to the usual aggressive technical techniques of negotiations, but rather the communication side.”

She says that the 10 delegates participated with enthusiasm and did not hesitate to express their opinions and differences.

This led to lively and interactive

discussions where various new ideas and techniques were experimented with.

“Role-playing, interactive exercises and games helped to reinforce a positive and proactive approach towards the negotiation process,” says Best.

“Everybody became aware of the importance of body language, eye contact and listening skills during all types of negotiation, and the strong perceptions these soft skills create.”

They also developed a conscious awareness of emotional intelligence, says Best, and the important role it plays during different phases of negotiation (for example, during conflict).

“Effective negotiation can only take place if there is effective communication,” she says. “This group of learners embraced this realisation. My best wishes accompany them, and I want to thank them all for an astounding and rewarding experience.”

pertaining to the Estate Agency Affairs Board fidelity fund certificates, sign board policies and general broker-related issues. Growthpoint Properties provided three lucky business-

card draw prizes (in addition to funding the catering for the evening, which was excellent).

Much positive feedback and appreciation for the event was received.

Networking, broker-style

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he Broker Cocktail Networking event was held on 18 September at the Growthpoint Properties Limited offices in Umhlanga, KwaZulu-Natal.

Attended by more than 75 guests, the event was a huge success. Louise Gibson, Vice Chair of the Broker SubCommittee, gave an introductory speech highlighting issues

TOP ROW, FROM LEFT Grant Boonzaier, Sanchia Malan, Craig Bartholomew; Simon Weare, Nikki Muslim, Kevin Gowdy, Justin Haines, Mogie Naidoo; Maggs Virasamy, Brian Thorne, Ingrid Naidoo, Marietjie Viljoen MIDDLE ROW, FROM LEFT Lowell Singh, Judy Kermack, Robert Kermack; Damian Govender, Marc Ardé; Helen Seymour, Sue Hudson, Henri Zietsman, Romona Moonsamy, Max Meyers LEFT Marietjie Viljoen, Ken Clarkson, Maria Nell, Ingrid Naidoo RIGHT Brian Thorne, Louise Gibson, Craig Davis

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off the wall

Hope floats In light of rethinking architecture for developing cities, floating structures could be the thing of the future

By Candace King

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gainst the rising tide of climate change and rapid urbanisation in Africa, architecture, design and urbanism practice focused on developing cities, NLÉ, has developed and built a unique and unconventional prototype floating structure for the Nigerian coastal water community of Makoko.

As thinkers, creatives and agents of change, NLÉ’s role is to reveal solutions to urbanisation and apply them in order to shape the physical, human and commercial structures that are critical to the near future of human civilisation.

Founded by Nigerian-born Architect Kunlé Adeyemi in 2010, NLÉ currently has offices in Amsterdam in the Netherlands and Lagos in Nigeria. NLÉ’s activities encompass city development research and strategy advisory services, conceptualisation and creative structuring, architecture and product design, infrastructure design, arts, and cultural urban interventions.

Dubbed the Makoko Floating School, the pilot project has taken an innovative approach to address the Makoko Waterfront Community’s social and physical needs in light of the impact of climate change and a rapidly urbanising African context. Its main goal is to generate a sustainable, ecological, alternative building system and urban culture for the growing population of Africa’s coastal regions.

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The project, which forms part of NLÉ’s greater proposed Lagos Water Communities Project and its African Water Cities research project, is situated on the lagoon fringe of Nigeria’s largest city, Lagos.

While Makoko is home to an estimated 100 000 people who reside in housing units built on stilts, the community lacks roads, land and formal infrastructure to support its day-to-day survival.

Based on its dire circumstances, Makoko serves as a prime example of the most critical challenges posed by urbanisation and climate change in coastal Africa.

Simultaneously, it also inspires possible solutions and alternatives to the invasive culture of land reclamation.

Prior to the inception of the Makoko Floating School, the community had been served by one English-speaking primary school, which was built on uneven reclaimed land and surrounded by constantly changing waters.

Increased rainfall and flooding often wreaked watery havoc on not only the primary school but also on many homes in the community.

In close collaboration with the Makoko community, NLÉ initiated, designed and built the 220m² 10m-high pyramid-shaped versatile structure, ideally developed to float on water because of its relatively low centre of gravity, which provides stability and balance even in heavy winds. It also has a total capacity

to safely support 100 adults, even in extreme weather conditions.

The building has three levels. The first level is an open play area for school breaks and assembly, which also serves as a community space after hours. The second level is an enclosed space for two to four classrooms, providing enough space for 60 to 100 pupils. A staircase on the side connects the open play area, the classrooms and a semi-enclosed workshop space on the third level.

The project was conceived in May 2011, and construction began in September 2012 with floatation mock-ups and testing. Recycled empty plastic barrels found abundantly in Lagos were used for the building’s buoyancy system, which consists of 16 wooden modules, each containing 16 barrels.

The modules were assembled on the water, creating the platform that provides buoyancy for the building and its users. Once this was assembled, construction of the A-frame followed and was completed by March 2013.

The simple yet innovative structure adheres to ideal standards of sustainable development with its inclusive technologies for renewable energy, waste reduction, and water and sewage treatment, as well as the promotion of low-carbon transport.

Furthermore, a team of eight Makoko-based builders constructed it using eco-friendly, locally sourced bamboo and wood procured from a local sawmill.

The project was finally completed in April 2013. It serves as a catalyst for future floating structures – the prototype structure was designed in such a way that it could be scalable and adaptable for other uses, such as a community hub, a health clinic, a market, an entertainment centre or housing.

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from the CEO

Food retailers under fire SAPOA CEO Neil Gopal addresses the anti-competitive behaviour of South Africa’s top food retailers, highlighting the recent inquiry made to the Competition Commission to investigate exclusive leases at shopping centres

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outh Africa’s large grocery retailers stand accused of anti-competitive behaviour.

In light of this very serious matter, SAPOA has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls.

SAPOA, the voice of the country’s commercial and industrial property sector, has levelled a formal complaint that names the Pick n Pay Group, Shoprite Group and Spar Group, but notes these are only some of a wider number of retailers that are parties to the conduct, which SAPOA asserts is anti-competitive.

Exclusivity clauses are usually requested by larger tenants as a condition for entering into long-term lease agreements, specifically in large retail centres.

Supermarket chains and property developers enter into and enforce longterm exclusive leases through so-called “anchor tenancy”. Typically, these leases are of a minimum period of 10 years, with renewal options up to 40 years. This means competing retail chains are excluded from particular shopping centres by “use and exclusiveness” clauses in lease agreements.

However, it isn’t only competing chains that are excluded. Specialist stores such as fruit and vegetable sellers, liquor stores as well as full-line grocery stores are also excluded in shopping malls where any one of the main supermarket chains is the anchor tenant.

The retailers named in the complaint are among those that have concluded and continue to seek to enforce the exclusivity clauses, and thus exclude competitors.

Exclusivity clauses harm competition to the clear detriment of consumers. They restrict entry into the market by competing retailers, especially when a retailer’s entry strategy requires scale of activity and buying, distribution and selling networks.

Besides excluding potential new market entrants, including independent and small retailers, long-term exclusive leases also reduce competition between supermarkets and broader competitors. The anti-competitive effects and outcomes, including higher prices, are to the detriment of consumers.

This will not be the first time the Competition Commission has turned its attention to long-term exclusive leases in shopping malls. SAPOA’s complaint notes that in January 2011, the Competition Commission concluded part of its investigation against the four major supermarkets, and found that exclusive lease arrangements are of great concern and could result in anti-competitive effects in circumstances where supermarket chains have market power within the relevant local markets. Its analysis to date indicates that they may amount to a contravention of the Competition Act, particularly where supermarkets have market power.

In several recent merger applications before the Competition Tribunal involving commercial or retail property, the Tribunal has imposed a condition to the merger approval that the parties to exclusivity clauses in leases negotiate in good faith to seek an end to the relevant exclusivity clauses.

But the pervasive nature of the practice in the retail sector shows that asking parties to negotiate to drop exclusivity clauses is insufficient. Instead, it is perpetuating anticompetitive behaviour. Thus SAPOA contests the issue cannot be resolved on a case-bycase basis. It is impractical, expensive and wasteful of resources to have to bring complaint proceedings in respect of each lease agreement.

The anti-competitive effects may be much broader than a localised investigation on local markets will reveal. For instance,

a larger potential new entrant on a regional or national level, which relies on economies of scale in sourcing, marketing and distribution, may be discouraged by having to deal with local investigations and determinations, with existing incumbents defending their position with long-term exclusive leases.

In addition, should a supermarket seek to enforce the exclusivity clauses contractually, resources required for references to the Tribunal are extensive.

SAPOA has urged the Competition Commission to investigate a range of exclusive leases, which show different circumstances, nature, extent and geographic exclusions, when considering the issue, and to provide guidance by way of a precedent.

Neil Gopal, CEO

The Comp Com’s ongoing retail investigation In June 2009, the Competition Commission initiated an investigation into top South African supermarket chains, including Pick n Pay, Shoprite-Checkers, Woolworths, Spar, Massmart and Metcash, for possible contraventions of the Competition Act. The key concerns included the concentration of buyer power, category management, exchange of information and long-term exclusive lease agreements.

According to a media release issued in January 2014 by the Competition Commission, the Commission concluded its investigation into exclusive lease agreements entered into between supermarkets and property developers, owners and managers of shopping malls (landlords).

The Commission found that this practice raises barriers to entry into grocery retailing. However, the investigation did not find sufficient evidence to meet the tests set out in the Competition Act for demonstrating anti-competitive effects.

The Commission remains concerned about the barriers to entry into the grocery retailing industry and the potential dampening effects of exclusive leases on competition.

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from the CEO

Food retailers under fire SAPOA CEO Neil Gopal addresses the anti-competitive behaviour of South Africa’s top food retailers, highlighting the recent inquiry made to the Competition Commission to investigate exclusive leases at shopping centres The retailers named in the complaint a larger potential new entrant on a regional or are among those that have concluded and national level, which relies on economies of continue to seek to enforce the exclusivity scale in sourcing, marketing and distribution, clauses, and thus exclude competitors. may be discouraged by having to deal with Exclusivity clauses harm competition to local investigations and determinations, with the clear detriment of consumers. They existing incumbents defending their position restrict entry into the market by competing with long-term exclusive leases. retailers, especially when a retailer’s entry In addition, should a supermarket seek to strategy requires scale of activity and buying, enforce the exclusivity clauses contractually, distribution and selling networks. resources required for references to the Besides excluding potential new market Tribunal are extensive. entrants, including independent and small SAPOA has urged the Competition retailers, long-term exclusive leases also reduce Commission to investigate a range of competition between supermarkets and exclusive leases, which show different broader competitors. The anti-competitive circumstances, nature, extent and geographic effects and outcomes, including higher prices, exclusions, when considering the issue, and are to the detriment of consumers. to provide guidance by way of a precedent.

This will not be the first time the Competition Commission has turned its Neil Gopal, CEO 3 4 attention to long-term exclusive leases in shopping malls. SAPOA’s complaint notes that in January 2011, the Competition The Comp Com’s Commission concluded part of its ongoing retail investigation investigation against the four major In June 2009, the Competition Commission supermarkets, and found that exclusive initiated an investigation into top South lease arrangements are of great concern and African supermarket chains, including Pick could result in anti-competitive effects in n Pay, Shoprite-Checkers, Woolworths, Spar, circumstances where supermarket chains Massmart and Metcash, for possible have market power within the relevant local contraventions of the Competition Act. markets. Its analysis to date indicates that The key concerns included the they may amount to a contravention of concentration of buyer power, category 1 Head office for Ecobank in Accra, Ghana. Architects: Arc Architects the Competition Act, particularly where management, exchange of information and 2 West Hills Mall in Accra, Ghana for a subsidiary of Atterbury Properties. Architects: Arc Architects supermarkets have market power. long-term exclusive lease agreements.

3 Student accommodation in Pretoria for the Feenstra Group. Architects: Boogertman + Partners In Office several merger applications 4 Vdara Park inrecent Johannesburg for Bakos Brothers. Architects: Integrale Architectural Design release issued According to a media before the Competition Tribunal involving in January 2014 by the Competition commercial or retail property, the Tribunal Commission, the Commission concluded has imposed a condition to the merger its investigation into exclusive lease approval that the parties to exclusivity clauses agreements entered into between in leases negotiate in good faith to seek an supermarkets and property developers, end to the relevant exclusivity clauses. owners and managers of shopping But the pervasive nature ofinthe practice DelQS was established 2000 and has malls since(landlords). built up a remarkable track in the retail sector shows that asking parties The found that all thisbuilding practice record. We have provided quantity surveying Commission services for almost to negotiate to drop exclusivity clauses is raises barriers to entry into grocery types ranging in construction cost from relatively small to multi-billion Rand insufficient. Instead, it is perpetuating antiretailing. However, the investigation did developments. Building and property economics is a specialty. competitive behaviour. Thus SAPOA contests not find sufficient evidence to meet the the issue cannot be resolved on a case-bytests set out in the Competition Act for case basis. It is impractical, expensive and demonstrating anti-competitive effects. wasteful of resources to have to bring The Commission remains concerned complaint proceedings in respect of each about the barriers to entry into the lease agreement. grocery retailing industry and the QUANTITY SURVEYING DISPUTE RESOLUTION PROPERTY VALUATION The anti-competitive effects may be potential dampening effects of exclusive much broader than a localised investigation leases on competition. www.delqs.com | JHB +27 (11) 642 8751 | PTA +27 (12) 460 3304 on local markets will reveal. For instance, Associated offices: GHANA | KENYA | MAURITIUS | NAMIBIA | NIGERIA | TANZANIA | UGANDA

Proactive Quantity Surveying

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outh Africa’s large grocery retailers stand accused of anti-competitive behaviour.

In light of this very serious matter, SAPOA has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls.

SAPOA, the voice of the country’s commercial and industrial property sector, has levelled a formal complaint that names the Pick n Pay Group, Shoprite Group and Spar Group, but notes these are only some of a wider number of retailers that are parties to the conduct, which SAPOA asserts is anti-competitive.

Exclusivity clauses are usually requested by larger tenants as a condition for entering into long-term lease agreements, specifically in large retail centres.

Supermarket chains and property developers enter into and enforce longterm exclusive leases through so-called “anchor tenancy”. Typically, these leases are of a minimum period of 10 years, with renewal options up to 40 years. This means competing retail chains are excluded from particular shopping centres by “use and exclusiveness” clauses in lease agreements.

However, it isn’t only competing chains that are excluded. Specialist stores such as fruit and vegetable sellers, liquor stores as well as full-line grocery stores are also excluded in shopping malls where any one of the main supermarket chains is the Gerhard de Leeuw Akopo Africa Nico Roos Dr Corné de Leeuw anchor tenant.

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Our track record speaks for itself.

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