ART
COMMERCIAL
SEPTEMBER 2020
PROPERTY
w w w.businessmediamags.co.za
E-COMMERCE DRIVES INDUSTRIAL PROPERTY GROWTH
INDUSTRY LEADERS SHARE THEIR THOUGHTS ON:
› VACANCY RATES › RENTAL GROWTH › OFFSHORE INVESTMENT › MEDICAL REAL ESTATE DEVELOPMENT
WHY INVESTING IN MIXED-USE SUITS OUR
NEW NORMAL
Barloworld Automotive & Logistics, Centurion
EDI T ORI A L COMMEN T
THE RISE OF E-COMMERCE
I
n this issue of Commercial Property, our business leaders share that while the sector has certainly been affected by COVID-19, the rise in e-commerce adoption, particularly for fast-moving consumer goods, food pharma and health-related products, has increased the demand for modern logistic real estate. In fact, on page 21, Ridwaan Loonat, property analyst at Nedbank CIB says that e-commerce has traditionally accounted for just 1-2 per cent of retail sales - but that’s set to change, growing to up to 3 per cent or even 5 per cent, thanks to COVID-19’s impact. There certainly is opportunity in the economic chaos the global pandemic has caused. We also share insights from business leaders around issues related to vacancy rates, the market outlook for the industry and key strategic rethinking that businesses need to employ to recover (page 7). Our specialists share why investing in mixed-use developments is still financially viable (page 25), just how quickly the property management sector has needed to adopt a more digital approach (page 31), and why the traditional bricks-and-mortar retail space is being challenged (page 36). Raina Julies
Contents 7
INSIGHTS
MIXED-USE DEVELOPMENTS Building green; The growth
Industry leaders share their market outlook for the commercial property sector
of smart cities; Why invest in mixed-use developments; Reviving the Old Cape Quarter
11
31
PROPERTY MANAGEMENT
Using drone technology to manage property; Why education and training is essential for the new property manager; Why tenant screening and leasing is essential
36
RETAIL
Rethinking bricks and mortar; Innovation and growth
FINANCE Opportunities for investors in sub-Saharan Africa; Is medical real estate a good investment?
21
INDUSTRIAL PROPERTY DEVELOPMENT
The rise of e-commerce is the reason for the growth of warehousing and logistics hubs
COMMERCIAL
PROPERTY www.businessmediamags.co.za
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EDITORIAL Content Manager: Raina Julies rainaj@picasso.co.za Contributors: Samantha Barnes, Trevor Crighton, James Francis, Anthony Sharpe, Lisa Witepski Content Co-ordinator: Vanessa Payne Copy Editor: Nicci Collier Digital Editor: Stacey Visser vissers@businessmediamags.co.za Cover Image: Barloworld Automotive & Logistics, Centurion Image credit: Louis van Zyl Photography and Media www.louisvanzyl.com
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COMMERCIAL PROPERTY
1
L E A DERSHIP INSIGH T S
An industry check-up Industry leaders share their market outlook for the commercial property sector. By GARETH GRIFFITHS
Our business leaders believe the work from home novelty will wear off by year end.
Vacancy rates are expected to reach double digits this year according to FNB economist, John Loos.
Vacancy rates - climbing? Norman Raad, CEO of Broll Auctions and Sales, believes that the commercial property market was overvalued. “Vacancies have increased across the board and the property sector was already struggling as businesses started to consider consolidation, or were looking for smaller, cost-effective premises. Since the (COVID-19) pandemic, some businesses have not reopened, making it difficult to calculate increases in vacancies. “The pandemic has brought forward the correction to an overvalued commercial sector, I believe. The disparity between new developments and existing properties has increased drastically, slowing the demand for new developments. Commercial offices were already experiencing massive reversions and increased vacancies before the pandemic. The pandemic has just exacerbated it,” says Raad. John Loos, an economist for Commercial Property Finance at FNB agrees that it is too early to calculate vacancy rates: “We don’t have data released that can show the extent of the impact of recent lockdowns, and the massive likely drop in GDP in the second quarter, on the commercial property sector.” Norman Raad
“The pandemic has brought forward the correction to an overvalued commercial sector.” – Norman Raad,
CEO Broll Auctions and Sales
Loos expects vacancy rates to reach double-digits this year, on the back of a sharp GDP contraction forecast of 8 per cent for 2020 as a whole. “In addition, the MSCI All Property Vacancy Rate recorded 6.7 per cent last year and rose in 2018 and 2019 due to the multi-year economic growth stagnation.” Estienne de Klerk, the CEO of Growthpoint, one of South Africa’s largest real estate investment trusts (REITs), adds that the country entered the COVID-19 pandemic with a surplus of commercial property space in the market. However, he sees a possible silver lining to the clouds for a sector John that he believes has come Loos through the initial shock of
COVID-19 in a structurally sound manner for its entire value chain, playing a pivotal role in supporting vulnerable small businesses and protecting jobs. Will the working from home lockdown phenomenon affect occupancies on an ongoing basis, creating further vacancies? Despite its initial appeal, Rob Kane, the CEO of Boxwood Property Fund believes that the novelty of working from home is wearing off. “City centres have been around for many thousands of years and it is unlikely that the pandemic will destroy peoples’ need to congregate to do business. We estimate that by year end, people will have learned to live with the presence of COVID-19 and business will continue,” he adds.
Rental growth pressures Loos believes there is a sure recipe for full-blown rental value decline. “Rode’s national prime industrial rental inflation y/y was at +0.7 per cent, by the second quarter, while national decentralised A-grade office rentals were already in slight deflation of -0.7 per cent. These saw significant declines in prior quarters. ›
DID YOU KNOW?
As an alternative to commercial lenders, developers have sought funding from Development Finance Institutions (DFI’S), who tend to have a different risk appetite than commercial banks. While commercial banks prefer to fund post completion – effectively “taking out” any development risk - DFI’s have been willing to look at development opportunities that have a social as well as a financial impact. Source: JLL, Hotel Devt Outlook, 202.
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L E A DERSHIP INSIGH T S
Growthpoint’s Key West Mall has solar power to produce over 1600 000 kWh of energy.
“There could be an increase in direct investment as interest rates are at an unprecedented low.” – Norman Raad,
CEO, Broll Auctions and Sales
Kane says that positive meetings have been held between Cape Town City, Wesgro, Provincial Government and Metro Police to discuss how to stimulate recovery together in the City of Cape Town CBD. “Shortly we will host a business think tank to find practical, immediate and longer-term solutions. You may recall how quickly things were done prior to the World Cup 2010,” reasons Kane.
Depreciation in capital De Klerk is bullish about the industrial sector: “Industrial property, and more specifically warehouse/ logistics, proved to be the most resilient of the sectors pre-pandemic.
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The property sector is entrepreneurial, making it naturally agile and positioning it well for a recovery when economic conditions improve. “Our office portfolio has been its best performer since the lockdown in March due to supportive bluechip clients.” Raad feels that property will always be a sector to invest in. “There could be an increase in direct investment as interest rates are at an unprecedented low. Returns, if backed by a solid tenant, could be financially attractive over the next few years.” “When one looks at the quality of some of the funds and their forward yields, there is definitely value to be had for investors,” agrees Kane.
What is the market outlook? As an economist, Loos expects the best part of a 15-20 per cent decline in average capital value of all commercial property through this year and next year, adding that full price corrections lag an economic shock due to market resistance to drop values. Pessimistically, he predicts: “Towards 2022/23, I expect the real value gradual decline to resume, meaning low-value growth not keeping pace with general economic inflation, as the economy returns to its long-term stagnant ways, constrained by many structural problems.” Raad agrees, adding that there is no short-term solution. “The country as a whole would need to turn this tanker around, which is very close to hitting an iceberg.” “Our biggest threat is corruption and at the expense of repeating many people, the president needs to stop talking and actually put some people behind bars,” suggests Kane. Estienne de Klerk
TARGETED FISCAL STIMULUS “Start with a reduction in rates. Commercial tenants are usually responsible for the rates and utilities and these have increased, increasing the burden on business. Electricity needs to be reliable and affordable. It has increased over the years to unaffordable levels, without consistency of supply. Investment into small businesses through these concessions is the easiest way to create stimulus,” suggests Raad. De Klerk comments that, while the South African REIT Association has approached the Treasury for some regulatory relief to enable members to retain earnings without losing their status, to date the National Treasury and the municipalities have not financially assisted the property sector directly. However, adds Kane: “National, provincial and local governments can all do a lot to remove red tape and stimulate business. The actions needed are not difficult - just ask any competent business person - they will tell you.” “Short-term fiscal stimulus measures have been massive, and interest rate cuts have been aggressive. But the only real solution to SA’s long-term growth stagnation is those well-documented structural reforms that are desperately needed,” concludes Loos.
Warehousing and logistics property has proved the most resilient sector prior to and during the lockdown period.
IMAGES: ISTOCKPHOTO.COM, SUPPLIED
Therefore I expect it is realistic that both, along with retail rentals, will be more significantly negative from H2 2020 into 2021,” he adds. Notwithstanding the “now”, De Klerk however believes that property has always been a longterm investment: “Rental growth has been inhibited recently because other costs that make up a business’s total cost of occupancy have been subject to hefty increases, including electricity and the alarmingly high rates Rob and taxes increases. Kane “Our tenants must reduce these costs in order to sustain their businesses. Bringing down operational costs is an ongoing focus area for Growthpoint. We have been investing in solar power and other technology to offer a lower cost of occupancy, while also supporting business continuity with back-up power and water.” Kane adds that those buildings that offer value for money, regardless of their grading, will retain their tenants. “This massive hit has been difficult for even the most astute property developer or landlord. The lacklustre economy simply doesn’t support any sort of annual escalation. This won’t be good for property owners, who rely on the compounded escalations to repay their investments over a period, and understanding what lies ahead fears most investors and business owners the most,” Raad warns.
F IN A NCE A ND IN V ES T MEN T
GRADE A OFFICE SPACE, GHANA: Absa Commercial Property Finance was involved in financing PwC Tower in Accra, Ghana. The 10-floor development boasts highend interior finishes, modern architectural design, and state-of-the-art systems and technology. Anchor tenant PwC will occupy six floors, while the remaining space is a multi-let to diverse businesses.
Opportunities in
sub-Saharan
Africa W
IMAGES: SUPPLIED
ith a footprint in sub-Saharan Africa, including South Africa, Botswana, Namibia, Ghana, Kenya, Mozambique, Tanzania, Uganda, Zambia, Mauritius and the Seychelles, the challenge for the Absa Group is understanding local operations. “We have a unique advantage,” says Somaya Joshua, head of Africa regional operations at Absa CPF. “With a banking presence in the countries where we actively provide debt, we have an on-the-ground understanding of those markets.” COVID-19 has impacted new development activity, which is limited. On the other hand, new Somaya Joshua development “varies from country to country”. Generally, “Clients have revised new investment decisions down given the uncertain environment,” reflects Joshua.
affordable housing and warehousing Predictably, with burgeoning population growth, there is pent-up demand for affordable housing. “In many markets, underdeveloped housing finance
Sub-Saharan Africa remains a worthwhile investment proposition. By SAMANTHA BARNES
systems provide both a challenge and an opportunity for developers and financiers,” says Joshua. “Demand for affordable housing extends to student housing.” Absa CPF anticipates that logistics and warehousing will present opportunities, given the drive to expand distribution warehousing in African corridors. “This may create opportunities for developers,” observes Joshua. Business Partners Limited expects increased demand for warehousing. Shane Padayachee, area manager at Business Partners Limited, one of Africa’s leading financiers for formal small and medium owner-managed businesses, explains: “Warehousing and storage seems to
have done well, especially in well situated areas.” Padayachee suggests a demand for small and medium industrial units in the short term: “As businesses improve efficiencies in staffing and operations, they could downsize space required.” He cautions that some larger warehouse spaces may find things more difficult until the market improves.
Taking a longer view on commercial space The outlook for commercial space is worrying, given lost revenue and rising unemployment. Commercial turnovers remain constrained. Liquidity is a problem. “They will stabilise,” Padayachee predicts. “Markets always recover and the commercial property industry will be no exception, making it a worthwhile investment in the long-term as the economy recovers.” While economic recovery is unlikely in coming months, Padayachee expects that over the coming years, property returns should, subject to interest rates, improve to at least pre-lockdown levels, albeit off the current low valuation base. “The need for commercial space will escalate for businesses across various sectors, ensuring improved returns as the economy recovers,” says Padayachee. Working from home has increased demand for datacentred rental space. Business Partners confirms significant commercial developments in sub-Saharan Africa. Ukam Properties spearheaded a 1 200m2 retail development in Kigali City. Studio 45 invested in a six-floor, mixeduse, office and residential development in Kamwokya, Kampala. Progress.
IS OFFSHORE PROPERTY INVESTMENT AN ASSET CLASS? When investing in offshore property, global real estate investment should definitely be recognised as a distinct asset class on the same level as other asset classes. It is a diversifying, value-adding, safe and appreciating addition to one’s portfolio. In fact, with all the many prevailing local and global uncertainties, diversifying into international property in stable and secure jurisdictions can serve as an excellent hedge against risks, says Craig Featherby, CEO and Founder of Carrick. “It is for this very reason that Carrick, together with our international partners, is now assisting its clients who wish to diversify into offshore property with a comprehensive range of services,” says Featherby.
Craig Featherby
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A DV ER T ORI A L
ON DISTANT
SHORES
Recently launched offshore real estate division Carrick Property has been making swift headway on distant, low-interest shores
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raig Featherby, founder and CEO of the Carrick group, was originally not a property man. “Throughout my career, I’ve been advising clients about shares and unit trusts as part of traditional financial planning,” says Featherby. “I’d been approached by countless international developers to get involved in property, but because it wasn’t my speciality I was reluctant to get my feet wet.” Midway through last year, Featherby and co predicted that the 12-year bull run on the international stock markets was bound to end, and realised they needed an alternative investment strategy. After finally becoming convinced to give property a try, Carrick Wealth created a proof of concept in its Harare office. “I believed that if it was successful in Zimbabwe, it would be successful anywhere else within the group,” says Featherby. The company facilitated 41 transactions in 90 days. That was proof enough.
BRICKS AND MORTAR Due to the high performance of the stock market, Carrick Wealth found that many of its clients were sitting on large amounts of cash. Coupled with the low-interest-rate environment, this meant getting into offshore property investment made sense. It also made sense for South Africans because, as group sales director, Bradd Bendall, points out, we are bricksand-mortar kind of people. “However, given the political situation in this country, it’s prudent for South Africans to hedge their bets and invest overseas, externalising their wealth to secure their retirements.” In consultation with clients, they developed a product offering with an entry-point level of around £95 000. Craig Featherby, Founder and CEO, Carrick Group of Companies
will be living there by the end of the year. Key to its appeal is that Carrick Property This will place massive strain on key housing facilitates a cradle-to-grave service, sourcing markets.” It also presents a appropriate solicitors, friendly financing environment. furnishing and tenants, “Institutions there are mostly and even collecting rental investment funds, which are through a group of carefully more interested in the property selected partners. A robust than the borrower. We just had process of due diligence a client enter into a 15-year ensures these partnerships finance arrangement with a fund work for everyone involved. at 1.8 per cent. When you’re Currently they deal Bradd Bendall, borrowing at that rate and your with four different service Group Sales Director, rental market is 4–5 per cent, providers: IP Global; Seven Carrick Wealth that makes a lot of sense.” Capital; Global Residential; and Residential Property Advisory Group. THE RETURN Friendly lending environments make for friendly returns, says Featherby. “When you can borrow money at 2 per cent, with rental yields across the UK anywhere from 6–8 per cent, capital appreciation including leverage comes in at about 15 per cent, and 4–5 per cent yields on an annual basis less your finance costs, clients are very happy indeed.” For the Carrick group, this all forms part of a – BRADD BENDALL holistic approach to securing clients’ financial futures. “Most of our clients have invested “We look at track records with a big focus with us through other investment vehicles,” on the balance sheet,” says Featherby. concludes Bendall, “so we need to safeguard “Developers need to have a strong enough their entire portfolios.” balance sheet to complete the development, This article is an opinion piece only and should not as well as access to external financing. Deposit be construed as investment advice. For investment guarantees are also essential. We want to advice you should always consult a professional ensure a low-risk investment for our clients.”
“GIVEN THE POLITICAL SITUATION IN THIS COUNTRY, IT’S PRUDENT FOR SOUTH AFRICANS TO HEDGE THEIR BETS AND INVEST OVERSEAS, EXTERNALISING THEIR WEALTH TO SECURE THEIR RETIREMENTS.”
wealth specialist.
LOCATION, LOCATION, LOCATION Of course, choosing the right location is as important as choosing the right partners. Therefore, Carrick Property takes a macro view of its prospective markets. “In the UK currently, there’s a 47 per cent undersupply of homes,” says Featherby. “Markets like Birmingham, Liverpool, Manchester and Leeds are all undergoing regeneration projects. Homes will need to be built.” Germany also represents a buoyant property market with stable rental and low unemployment. “It’s the largest economy in Europe,” says Featherby. “An estimated 83.5 million people
For more information: +27 (0) 21 201 1000 Carrick House, The Forum, North Bank Lane, Century City, 7441 info@carrick-property.com www.carrick-property.com
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F IN A NCE A ND IN V ES T MEN T Giflo’s Cormed Private Hospital has undergone significant upgrades, including an expansion project taking the hospital to 62 beds and three theatres.
Investing in medical
real estate Healthcare-focused property companies are performing well despite the current global economic climate, reports SAMANTHA BARNES
H
ealthcare property development is a high barrier to entry proposition, as befits the market that the sector serves, which includes acute and sub-acute hospitals. So what is critically important when serving this market? “Very important is obtaining the trust and buy-in of medical specialists,” says Michiel Scharrighuisen, director at Giflo. “The other element is to engage, listen and understand the doctors needs and provide workable solutions. The most important factor is a fair and sustainable rental proposal.” In 2018, Growthpoint Properties launched Growthpoint Healthcare Property Holdings and announced a R2.4-billion portfolio. Dr Linda Sigaba, fund manager of Growthpoint Healthcare Property Holdings attributes their success to collaboration and strong working relationships. “These specialist developments are tailor made,” says Dr Sigaba. “They require turnkey solutions to enable their effective and efficient functioning and an excellent experience. The entire process is undertaken in close consultation with operators, doctors, and other stakeholders.”
COVID-19 has drawn attention to shortcomings in the provision of healthcare. “The pandemic has highlighted critical gaps in South Africa’s healthcare sector,” says Dr Sigaba. “We believe that we could play a role in closing them. For instance, the need for private sector hospital beds in traditionally underserviced areas like townships, and the smaller provinces.” Giflo has not changed their approach during the pandemic. “We remain as committed to our existing projects and positive about our future projects as we were before,” says Scharrighuisen.
Who is playing within this space The Growthpoint Healthcare Fund is the first unlisted healthcare fund to invest exclusively in healthcare property assets in South Africa. The investment mandate is to acquire and develop acute, day and specialist hospitals as well as laboratory and pharmaceuticals manufacturing and warehousing facilities. The specialised surgical hospital development by Growthpoint and Cintocare became the first healthcare property on the African continent to be
awarded a Green Star Rating, receiving 5 Green Star Custom Healthcare design certification from the Green Building Council South Africa (GBCSA). “We will be proud to take ownership of this clinical centre of excellence on completion,” says Dr Sigaba. “Growthpoint also completed the 52-bed expansion of Busamed Hillcrest Private Hospital in January, which added much needed surgical and medical capacity to the busy healthcare facility.” Lockdown delayed construction of the Cintocare Pretoria Head and Neck Hospital. Opening has been rescheduled for January 2021. Giflo is especially proud of their pilot purchase, Cormed Hospital which they expanded and renovated. “The significance was a solution-based approach to engage collectively and individually with various shareholders,” says Scharrighuisen, “earning their vote of confidence to participate in a facility they have been creating for 30 years and trusting our involvement therein.”
“Very important is obtaining the trust and buy-in of medical specialists.” – Michiel Scharrighuisen,
director, Giflo
GVK-SIYA ZAMA was involved in the refurbishment and expansion of the clinical Neuroscience Institute at the UCT Groote Schuur Medical Campus.
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“From a contractor’s point of view, ensure that consultants are healthcare specialists; including the architect, mechanical, electrical and plumbing consultants and other specialist services,” advises Eben Meyburgh, CEO of GVK-Siya Zama. GVK-Siya Zama’s expertise includes the entire spectrum of healthcare services, from highly sophisticated private hospitals with specialist facilities such as oncology bunkers, to large government hospitals, day clinics, community health centres and rural clinics. COVID-19 presented the opportunity for the company to deliver fast-track projects. “Many healthcare facilities were required to prepare for the onslaught of the pandemic,” explains Meyburgh. Teams embraced alternative building technologies (ABT) such as pre-manufactured lightweight steel structures to deliver projects. GVK-Siya Zama entered into partnerships with consultants to deliver turnkey projects in record time. “Such consortiums are proven to be more productive, being more symbiotic and solutions focused,” says Meyburgh. The innovation and commitment of these medical real estate companies is commendable.
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WHY HEALTHCARE SPECIALISTS ARE KEY PARTNERS
A DV ER T ORI A L
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VK-Siya Zama Construction has a proud South African history, tracing its roots to 1960. The construction giant is a Level One Broad-based Black Economic Empowered (B-BBEE) contributor and 51 per cent blackowned. It is one of a select group of privately owned construction companies, graded at Construction Industry Development Board (CIDB) Level 9 GB:PE (General Building Potentially Emerging) and 8 CE: PE (Civil Engineering, Potentially Emerging). “We differentiate ourselves by the collaborative relationship we develop with clients, industry associates and employees; working with integrity, being fair and getting the job done,” says Eben Meyburgh, CEO of GVK-Siya Zama. “Our depth of knowledge and experience working with and meeting the expectations of a variety of clients affords us the advantage of advising clients and finding solutions to problems.” With an extensive client list in the private and public sectors, GVK-Siya Zama has the expertise to deliver projects in many sectors including education, healthcare, judicial, commercial (industrial, business and retail), hospitality and residential, mining, industrial, municipal and government infrastructure and service projects. Maintaining international operating standards is a top priority for the group. “Our ISO 14001 certification in 2013 is testament to our commitment to environmentallysound practices,” says Meyburgh. Further international certifications include ISO 9001:2015 (quality management) and OHSAS 45001 (health and safety). Civils infrastructure expertise includes building water and wastewater treatment plants, reservoirs, process plants, mining infrastructure, water and sewerage infrastructure and specialist civils’ structures such as railway over- and under-passes. GVK-Siya Zama has offices in Cape Town, Port Elizabeth, Durban and Johannesburg.
For more information: www. siyazama.co.za Building Eastern Cape | Hannes Geyser (041) 365 1557 Gauteng | Pherdy le Roux (011) 608 0313 KwaZulu-Natal | Justin Meder (031) 314 3700 Western Cape | Chris Maughan (021) 461 6665
COLLABORATION IS THE NAME OF GAME Construction giant GVK-Siya Zama Construction believes in working together with stakeholders to deliver on projects PROJECTS Some of GVK-Siya Zama’s current and recent projects include: Civils • Isipingo Retail Development, Isipingo • Saveways Mall, Witbank • Corobrik, Driefontein • Limpopo High Court Parkade, Polokwane • Sipetu District Hospital, Ntabankulu • Thulamahashe Plaza, Thulamahashe • Forest Hill Military Base, Port Elizabeth • Dinosaur Interpretative Centre, Clarens • Ernie Els Winery, Stellenbosch • Port Nolloth CHC, Port Nolloth • Royal Buffalo Specialist Hospital, East London • Saldanha Bay IDZ Gatehouse Commercial • The Ridge, V & A Waterfront, Cape Town • Plein Park, Cape Town CBD • Talksure House, Umhlanga Ridge, Durban • Engen, Cape Town CBD • Waterfall Corporate Campus, Phase 3 Building 5, Waterfall, Midrand • Global Call Centres, Two Locations, Cape Town Healthcare • Sipetu District Hospital, Ntabankulu
• Royal Buffalo Specialist Hospital, East London • Lenmed Royal Hospital and Heart Centre, Kimberly • Melomed Private Hospital, Richards Bay • Eden Gardens Private Hospital, Pietermaritzburg • Netcare St Augustine’s Hospital, Berea, Durban • Vredenburg Hospital, Vredenburg • Cato Ridge Private Hospital, Sherwood, Durban • Lusikisiki Clinic, Lusikisiki Retail • Saveways Mall, Witbank • Isipingo Retail Development, Isipingo • Thulamahashe Plaza, Thulamahashe • Walmer Park Shopping Centre, Walmer, Port Elizabeth • Stadium on Main, Claremont, Cape Town • 4th Avenue Pick n Pay, Newton Park, Port Elizabeth Residential • Old Cape Quarter, De Waterkant, Cape Town • The Anson, Observatory, Cape Town • Eaton Square, Diep River, Cape Town
Civils Anton Botha (011) 608 0313 Business Development Western Cape Graham Brookman 083 644 8840 Gauteng Ndzulu Twantwa 072 700 0814 Paul Baggott 083 200 6793
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The rise and rise of
INDUS T RI A L PROPER T Y DE V EL OPMEN T
e-commerce From a change in demand driven by the growth of e-commerce, the profile of the industrial property industry is evolving. LISA WITEPSKI rounds up the trends
REIT’s Louwlardia Logistics Park
E
Fields adds that despite the wide range in e-commerce adoption, particularly -commerce has traditionally of industries making use of logistics real for food, fast-moving consumer goods, accounted for just 1-2 per cent estate, the disruption to brick-and-mortar pharma and health-related products of retail sales - but that’s set to retail - and on logistics supply space in should support demand for modern change, growing to up to 3 per particular - is likely to be limited, because logistic real estate.” cent or even 5 per cent, thanks to consumer spend is In addition, overflow COVID-19’s impact, according to Ridwaan expected to remain space has also been Loonat, property analyst at Nedbank CIB. subdued in the short- to required as a result In fact, Loonat says that Prologis puts this medium-term. of the need to create number closer to 20 per cent. That said, there is contingency in the supply The ramifications are significant: with likely to be greater of goods due to the impact e-commerce taking up three times the demand for logistics of COVID-19. Surges in space that a bricks-and-mortar store centres suited to demand for certain goods, would need per dollar of sales, it’s meeting the needs of as recently experienced clear that demand for distribution the e-commerce market due to the pandemic, centres and urban warehouses is Bruce in terms of location and may require a rethink set to grow. Fields design, especially given of certain supply-chain The change is already taking the growing demands management aspects place, says Steven Brown, CEO of on delivery timelines as the national as suppliers may seek to bolster Fortress REIT, reporting that the footprint for key e-commerce service supply of certain highcompany’s vacancies in the providers continues to develop. demand goods.” logistics space is in the low digits, while Bruce Fields, national director of JLL, says “The increase in e-commerce adoption, particularly for food, that one national retailer fast-moving consumer goods, pharma and health-related has reported a 200 per cent online boom, thanks to products should support demand for modern logistic Steven Brown COVID-19. “The increase
real estate.” – Steven Brown, CEO, Fortress REIT
Warehouse design SIZE MATTERS
Warehouse design is changing to accommodate the new demand on the sector.
Warehousing design is changing on two levels: on the one hand, there’s a growing demand for bigger, mega-distribution centres capable of serving an entire network, according to Corne van Rooyen, head of industrial, commercial, education, hospitality and mixed-use property at Fernridge Solutions. “But changes are unlikely to be immediate: the planning, design and construction of additional warehouses and logistics takes time, so many local retailers ›
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are offering these services from their existing store, warehouse and logistics networks,” says van Rooyen. Demand is changing in other ways, too. Inospace’s Rael Levitt agrees that larger distribution centres - measuring 10 000m2 or more - are increasingly attractive, adding that these are often customised with significant height to allow for packing and stacking, or large access areas to facilitate trucking. Mid-size companies, meanwhile, are moving away from incorporating office space within warehouses, leaving more floor space open. This represents an effort to avoid the considerable expense of automated racking spaces. Levitt has also noticed increased interest in smaller spaces, measuring around 500 to 5 000m2. One of the biggest issues driving changes in design is accessibility, according to Paul Cook, CEO of Faithful to Nature. Cook observes that the days of warehouses storing large quantities in
Automation infrastructure in warehousing helps maintain spacing flexibility.
bulk are over, which means that they will no longer be required to accommodate enormous trucks. Instead, the focus will shift to improving access for small vehicles and fleets; thus, the very shape of the warehouses will change.
TECHNOLOGY AND DESIGN “Facilities will need to be able to accommodate higher tech working, from the point of view of infrastructure as well as an environment that is increasingly
called upon to support machine vision, robotics and automation.” Finally, says Hannes Wagner of Struxit Projects, anyone considering warehouse design should give thought to implementing infrastructure technology which enhances automation possibilities, installation and process time, and lean manufacturing best processes. The ideal warehouse space is flexible, so that it can be tweaked by future lessees, if necessary.
Companies look for high quality, flexible spaces from trusted operators.
Flexibility: The leasing model of the future
T
he impact of e-commerce’s upward trajectory is very much in evidence when it comes to demand for flexible leasing. Paul Cook, CEO of Faithful to Nature, points out that most e-commerce businesses are typically fast-growing and venture funded, making capital expensive. Added to this, few entities in this space can predict their needs within the next five years, making it hard to know what kind
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of space they will require. Consequently, there is understandable reluctance to sign long-term leases. However, even better-established businesses can expect a state of flux in the wake of the pandemic, says Marc Levitt of Paragon Lending Solutions. “We’re seeing a definite move away from traditional, longer leases of say five years, to shorter leases of one to two years. And even more optionality Paul Cook around opportunities to
expand your workspace during busy times or decrease it (with a penalty), as cycles demand.” Levitt adds that this trend is affecting the dynamic between tenants and landlords, with the former assuming more power - to the point where they are able to dictate what they are willing or able to pay. Corne van Rooyen, head of industrial, commercial, education, hospitality and mixed-use property at Fernridge Solutions, agrees, noting that this new flexibility is not limited to the industrial property sphere but can be seen in all sectors - and it has consequences. “If landlords don’t grant tenants the flexibility they need, in terms of space or lease-terms, they’re likely to approach thirdparty logistics or storage providers that are able to meet their needs. Landlords and tenants alike therefore have to adopt an adaptive mindset if they are to balance factors such as tenant retention, rental Marc Levitt
I NDUS T RI A L PROPER T Y DE V EL OPMEN T
escalation, space requirements and lease options.” These developments are taking place against a backdrop of increased flexibility in all aspects of the organisational milieu, says Grant Kirchmann, head of corporate solutions SA & SSA at JLL. He points to the adoption of remote-working practices, but this trend goes beyond a need for flexible space. For instance, he forecasts a reversal of the densification trend which was
prevalent over the past years, as companies place new emphasis on health and safety. Kirchmann maintains that this will give rise to small, more efficient markets populated by well financed, profitable regional operators as companies look for high quality, flexible space from trusted operators. We may even see the entry of remote warehouse facilities based on the model of remote offices spaces, such as WeWork.
“If landlords don’t grant tenants the flexibility they need, in terms of space or lease-terms, they’re likely to approach third-party logistics or storage providers.” – Corne van Rooyen, Fernridge Solutions
“PAY-AS-YOU-GO” When Inospace introduced their “Pay-as-you-go” leasing option, they immediately got interest from many of South Africa’s largest retailers and groups who needed immediate space for both slow and fast-moving goods. These companies were not interested in signing lengthy long-term leases. Traditionally, Inospace focused on small-and medium-term businesses but they also knew that all businesses would want the type of month-tomonth warehousing solutions that they could offer. Looking ahead, they believe that large businesses and corporates will also start utilising on-demand warehousing to place stock which has traditionally moved through more expensive retail channels.
Nairobi Gate Industrial Park, located off the eastern bypass in Nairobi.
Location, location IMAGES: ISTOCKPHOTO.COM, SUPPLIED
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hile other aspects of the industrial property sector may be undergoing significant transformation, demand for space in terms of regionality remains predictable: Johannesburg, Cape Town and Durban have the existing networks and established markets to ensure that large mega-distribution centres in these areas remain highly sought after, says Van Rooyen. He cites Cato Ridge and Hammarsdale in Durban as examples of areas that have experienced significant recent growth, driven by these factors.
But, he continues, companies will increasingly look at smart geo-location analysis to optimise the location of smaller regional distribution and pick-up centres, to reduce the time and distance of lastmile delivery so that same-day delivery becomes the norm. These centres are usually located on the edge of urban areas - Plumstead in Cape Town, Umhlanga in Durban and Fourways in Johannesburg are prime examples. Some companies, meanwhile, are looking beyond South Africa’s borders to take advantage of industries that, unlike our own, have yet to become saturated. For instance, Mark Truscott of Improvon
York Commercial Park, Lusaka
reports that the company’s Nairobi Gate has been well received by a Kenyan industry eager to enjoy the conveniences of a world-class industrial park, while York Commercial Park in Zambia is set to offer that country similar benefits.
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MIXED-USE DE V EL OPMEN T Barloworld Automotive & Logistics Head Office, Irene Link precinct, Centurion
S marter and more diverse developments The convenience of mixed-use developments is peerless - and the implementation of Smart City technology and green building practices adds additional appeal
SMART CITY NODE, LANSERIA
Going Green The Barloworld Automotive & Logistics Head Office was the first building to be completed in Centurion’s new mixed-use Irene Link precinct, and achieved a 5-Star Green Star SA Design Rating. By TREVOR CRIGHTON
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he Barloworld Automotive & Logistics building forms part of a larger precinct within the Irene Link development, which has a green focus. The precinct will eventually extend along the N1, up to the Botha Avenue off-ramp and adds a new, vibrant centre of economic growth alongside the established Irene residential area. Developed by Abland Property Developers, together with Giflo and Som, the 5 700m² development accommodates 380 staff over four floors, and the building’s position offers staff both easy highway access and walking-distance retail, recreational and entertainment facilities. The office space also includes boardrooms, a canteen, gym, coffee shop and cyclist facilities. Consciousness around the use of water in the building played a major role in the building’s design and was one of the top-scoring sections in the assessment for its Green Rating. “A lot of time was spent optimising the effective collection of runoff water, storing and cleaning of the harvested supply,” says Abland’s Simon Van Helsdingen. “Water is collected from roofs and balconies, solids are removed and the water is stored in basement reservoirs. It’s then filtered and treated before being recirculated into the building as potable water, with a two-day backup supply.” Green credentials were top of mind for the architects, who balanced those requirements with creating an aesthetically-pleasing space – the near-360-degree views of Irene and Doringkloof also allow ample natural light penetration and its distinctive organic curves make the building easy on the eye. Double-glazing benefits both internal thermal and acoustic conditions, photovoltaic panels supply 25 per cent of the building’s electricity needs and a custom thermal energy storage (TES) system boosts off-peak cooling. “The concept was always to design a building that acknowledged its locality and communicated an architectural character that could be acknowledged in the rest of the precinct,” says Van Helsdingen. “The design team decided on ‘bestpractice’ development principles based more on effective commercial design and viable implementation than the traditional elements”.
President Cyril Ramaphosa announced the development of the Lanseria Smart City node development during SONA in February. The president said that the precinct will not only be smart and 5G-ready, but also a benchmark for both continental and international green infrastructure. Plans include developing the area into an ICT, training, and research centre, with tourism and leisure attractions, while it will also become a manufacturing, logistics and business hub. It will use Lanseria International Airport as a hub and boost the area’s infrastructure significantly. “The initial draft masterplan for the new Smart City node is now completed and is currently being reviewed by the relevant municipal governments,” says Dr Kgosientso Ramokgopa, head of the investment and infrastructure office in the presidency. “It will be released in September to developers and other interested parties through bilaterals and in November to the wider public through a range of channels.” Dr Ramokgopa says that the masterplan lays out the blueprint for the Smart City node so that the various private sector investments fit into a coherent City design, and to ensure all the economic and social impact multipliers kick in. “Beyond this, the master-planning approach directly supports the inclusion of green and smart infrastructure in public sector infrastructure at regional node level, including green sewage, embedded generation and microgrids, grey water re-use systems, waste-to-energy approaches and smart infrastructure management,” he says. ›
DID YOU KNOW?
The Lanseria Smart City node development will eventually host over 850 000 households and make it home to more than 2.5 million people, with commercial and office space on more than 1 000 hectares of land. Source: The Investment and Infrastructure Office in the Presidency.
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North Point Ballito
NORTH POINT BALLITO Situated at the centre of one of South Africa’s fastest growing wealth areas, North Point Ballito comprises 51 serviced sites on a secure, landscaped and architecturally themed business estate. With few zoning restrictions in place, the development can accommodate enterprises of almost any size and industry. “North Point Ballito’s location is one of the factors that make it quite unique in terms of all the industrial space on the North Coast,” says lead developer James Hesse. “North Point Ballito is set up within the Ballito town limits, so it offers plenty of lifestyle opportunities and a massive pool of talent from Empangeni, all the way down to Durban.” The development is located within 15 minutes of King Shaka
International Airport, 40 minutes from Durban and 90 minutes from Richards Bay, so it caters for an array of enterprises with import-export, logistics, cold storage and warehousing requirements - and more. Hesse says that the development’s 51 serviced sites cover 380 000m2 and
provide plenty of variety for investors. “The development offers spaces from R2-million for a mini-factory or courier service, for example, all the way to massive platforms with incredible roadside visibility on the R102 and N2,” he says. “There are plenty of price points and lots of flexibility.”
Oxford Parks, Johannesburg
Why invest in
mixed-use?
Steyn City, Johannesburg
Mixed-use developments offer tremendous flexibility for live-work-play, especially in a post-COVID-19 world where work-from-home is the new normal
OXFORD PARKs, JOHANNESBURG Oxford Parks runs along Oxford Road from Jellicoe Avenue to Bompas Road in Dunkeld, adjacent to Rosebank. The precinct will, at completion, house 300 000m2 of offices, bespoke retail and an array of residential apartments, with an emphasis on a high-quality public environment. With four highway access points, proximity to the Rosebank Gautrain Station and bus routes, walkability on the Parks Boulevard and a variety of other excellent public transport options, Oxford Parks is ideally located for the live-workplay lifestyle. By implementing the latest building technology, with an emphasis on 4-5-Star Green Ratings with back-up power and
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water, the precinct will fit in seamlessly with the ‘urban forest’ that makes up the surrounding suburbs. “The development of Oxford Parks is managed by a suite of City of Johannesburg (COJ) policy documents that capture the urban development vision for this significant intervention,” says Intaprop director Carollyn Mitchell. “Oxford Parks is one of COJ’s flagship policies to restructure the city in response to the expectations and needs of its citizens. The development of Oxford Parks is a co-ordinated, planned approach to growth in the city addressing infrastructure upgrades, housing provision, proximity to public transport, and more.”
STEYN CITY, JOHANNESBURG Steyn City presents the ultimate live-workplay lifestyle, with a number of outstanding recreational facilities, AAA-grade offices, a forward-thinking school campus and scheduled retail development all on site. “While always desirable, demand for such mixed-use developments has increased considerably in the wake of the coronavirus pandemic and its impact on the way we live,” says Lambert Bezuidenhout, Steyn City sales manager. “Now that working remotely has become the norm, people are looking for a mix of
“Now that working remotely has become the norm, people are looking for a mix of convenience and comfort.” – Lambert Bezuidenhout, sales manager, Steyn City
MIXED-USE DE V EL OPMEN T
convenience and comfort - and the 2 000 acres of parkland at Steyn City means that they can enjoy the convenience of a home office with stunning vistas. The parkland area also offers plenty of outdoor activity options, including a 45km running and cycling track and outdoor gym stations.” For those who prefer to keep their home life separate from the office, the commercial premises available at Steyn City’s Capital Park are a real boon, thanks to their proximity. Capital Park will comprise 10 uniquely designed office buildings, with construction on the second building currently underway along the R511 from Sandton, through to the N14 highway. “Ultimately, there is little to rival the sheer convenience offered by mixed-use developments - and when an invigorating, outdoor- and family-oriented lifestyle is part of the package, so much the better,” says Bezuidenhout.
Renovations to the Old Cape Quarter in De Waterkant, Cape Town.
The Old Cape Quarter
Reviving the Old Cape Quarter
emand for mixed-use developments within the Cape Town CBD continues to grow - and Old Cape Quarter D is set to add a luxurious option in trendy De Waterkant
COPY: TREVOR CRIGHTON, IMAGES: SUPPLIED
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he Cape Town CBD has many faces, with so many pockets of distinctive style and atmosphere. De Waterkant is among the most vibrant areas, packed with restaurants, clubs and hotels - and the new R500-million Old Cape Quarter development is set to add more residential and retail properties over 5 floors, around the existing Cape Quarter development. Bounded by Dixon, Waterkant and Hudson Streets, Old Cape Quarter pays tribute to the existing architectural language of the suburb. Bruce Rogerson, asset manager at developers Tower Property Fund, says that the development seeks to take the now-ubiquitous livework-play theme to a new level by adding a sense of community and neighbourhood “togetherness”. “Old Cape Quarter is a
new breed of development, which adds wellness aspects and forms a symbiotic relationship with the existing Cape Quarter development,” he says. “We understand that we’re establishing this development in a unique neighbourhood with a strong history and aesthetic - and a strong sense of community. Plenty of the retail space in the area is owner-run, and that fosters the sense of community involvement that we’re paying tribute to.” At completion, Old Cape Quarter will comprise two blocks with 70 residential units - the first block is home to 55 luxury one- and two-bedroom apartments, and
three-bedroom penthouses. “There’ll be two to three floors of retail space, one floor of office space, four floors of residential apartments and three floors of parking,” explains Rogerson. Luxurious fittings are a hallmark at Old Cape Quarter, with each unit boasting double-glazed floor-to-ceiling windows, timber flooring, air-conditioning, Miele appliances and Hansgrohe brassware. The building is designed by Cape Town architectural stalwarts DHK and will be clad in Rheinzink cladding, up to penthouse level. www.oldcapequarter.co.za
“We understand that we’re establishing this development in a unique neighbourhood with a strong history and aesthetic.” – Bruce Rogerson, asset manager, Tower Property Fund
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A DV ER T ORI A L
THE NEW RENTAL ECONOMY IN A POST-PANDEMIC ERA The rental market has to stay fresh and find new approaches to meet tenant needs
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he 2020 COVID-19 pandemic has changed the commercial and residential rental markets, possibly forever. The business of renting office space or rooms or homes, or anything shared, was suddenly not a business at all. People recoiled. The market reacted. Household names such as Airbnb, Hertz, Sandton City and the V&A hit the headlines as the virus hit them hard. And, in the case of Hertz, permanently. Now, as restrictions ease and markets slowly recover, the commercial and residential property markets are facing a new future; one that has to adapt to thrive in a post-pandemic world. “In a world and market defi ned by uncertainty, the property industry is not alone in looking for sustainable answers to complex questions,” says Michael Franze, managing director at Citiq Prepaid. “Rental rates and occupancy have all dropped signifi cantly. This is further complicated by an increase in vacancies and rental arrears. Even though these numbers are slowly starting to change, the market is in dire need of fresh ideas and approaches.”
TENANTS ARE CHANGING THE WAY THEY APPROACH RENTAL AND SPEND IN BOTH THE COMMERCIAL AND RESIDENTIAL SPACE. The challenge is not just in recouping the losses from arrears and lost business, but also in meeting the changing needs of a market that’s rethinking how it lives, works and consumes. On the one hand, retail spaces such as Sandton City and the V&A have seen a loss of earnings due to the impact of the
lockdown on tenants. Late payments, lower rental agreements, limited footfall have all led to reduced income. On the other hand, tenants are changing the way they approach rental and spend in both the commercial and residential space.
“One of the areas where people struggle to manage their payments and their usage is utilities.” – Michael Franze, MD at Citiq prepaid
NEW NORMAL WITH NEW DEMANDS “The zeitgeist of the 2020 pandemic is defined by change, awareness and accountability,” says Franze. “People have recognised that there are things they don’t actually need or want in their lives. Spending patterns have changed, approaches to personal safety and wellbeing have fundamentally altered movement and behaviour. It’s the new normal and this means that rental markets have to find a new way of doing business.” The commercial space of the future is going to be defined by new parameters. Tenants want minimal contact, they want to limit their movement in the world, and they want access to reliable services and solutions. They don’t want to have to expose themselves or their employees to multiple touchpoints, which could expose them to the virus. They need their premises to be clean, accessible and safe for everyone. This introduces a new dynamic to the market – how can properties reduce admin and contact while still delivering reliable services? “One of the areas where people struggle to manage their payments and their usage is utilities,” says Franze. “This is particularly relevant in the commercial space where multiple tenants share a single utility meter and usage has to be divvied up every month. The manager has to physically deliver the statements and manage payments. If there’s conflict or dispute, this can escalate into timeconsuming engagements affecting everyone involved. Utilities are already a hot topic in
South Africa so the one area where a property can change the dynamic is in its approach to utility management.” Properties should consider looking at solutions such as prepaid submeters that allow for tenants to manage their own payments and budgets. These can be installed in multiple areas on one property and reduce the risk of fraud, dispute and physical contact. Most solutions are completely digital and add that extra edge of efficiency to any given rental space. The world has changed. People are changing. The market has to stay fresh and find new ways of solving tenants’ problems. That way the mark left by the pandemic is one of innovation, not dissolution.
For more information: 087 551 1111 Citiq Prepaid, Mahai Close, Howick Gardens, Waterfall Park, Midrand www.citiqprepaid.co.za
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P ROPER T Y M A N AGEMEN T
A 360-camera used to capture explorable footage for a virtual tour of a property.
Riaan Huysamen (far left) from SkyPixels preparing to record footage with a drone.
V irtual Reality irtual tours, in our new normal, are fast becoming commonplace V to sell property. By JAMES FRANCIS
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e’re taking a stroll through a house. The estate agent points out various features, gesturing and moving about. But we’re not at the property, and the agent’s presentation is not specifically for us. Instead, we’re watching a tour on YouTube, moving our phone to look around an impressive 360-degree scene. “In the international market, people are quite accustomed to virtual tours,” says Brendan Louw, CEO of Forj, a producer of virtual photo and video tours. “And three years ago, we started seeing this trickle into South Africa. There’s definitely momentum in the property market and we’ve even seen a higher increase since the pandemic.” At its most basic, you can imagine a virtual tour being similar to Google Street View: static photos stitched together so you can explore a 3D space using your mouse or fingers. The next stage is a virtual video tour, using 360-degree footage edited into an interactive video. At the top of the heap,
at least in terms of expense and complexity, are rendered tours: 3D rendered examples of properties or interior designs - popular among architects and those pre-selling properties. But regardless of the method, the result is the same: the ability to scrutinise a property without physically being there. Drones are also a modern way to capture property on video. According to Riaan Huysamen, an aerial photographer and drone pilot at SkyPixels, drones are great for location shots and bird’s-eye views of property layouts. Small drones can record interiors, so a video can swoop elegantly inside and outside of a property. Drones are used to capture 360-degree footage or photos, in ways other techniques cannot. “The drone is always going to give you a view that no camera can, unless
Education and training As the need increases for property managers to be upskilled, JAMES FRANCIS looks at the ways they can do so
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he role of a property manager has become more intense since the COVID-19 pandemic, prompting managers to be more formally qualified, says Samuel Azasu, associate professor (Real Estate) at Wits Enterprise. “The current pandemic has already complicated the demands for the job.
The pandemic has, in many cases, amplified the impact of a lack of formal training as people are forced to respond to situations they have not been trained for. Being able to understand the drivers of the economic outcomes for the property you manage and the changing
you had a very expensive camera on a long stick. You can take those kinds of shots that you would battle to do if you just had a normal camera,” says Huysamen. Uptake of these technologies has jumped, particularly among younger estate agents. Costs are also coming down - a standard virtual tour can cost less than R3 000 and these are very popular for sole mandates and private sellers - not least because they are secured from snooping visitors.
“In the international market, people are quite accustomed to virtual tours.” – Brendan Louw, CEO, Forj But there is also an influx of underqualified and amateur producers. Equipped with a basic 360-degree camera or unlicensed drone, these individuals frequently flaunt laws and produce poor quality content, undermining the rest of the industry. If you want a virtual tour of a property, consult the professionals. Cutting corners only leads to lacklustre results and legal complications.
needs of your tenants does not come naturally. Even if on-the-job learning is possible, formal training accelerates this learning and contextualises experience people already have,” says Azasu. There are numerous channels through which to train as a property manager. The University of the Witwatersrand’s Wits Enterprise is one of several local universities that offer a formal qualification. Others include the › Samuel Azasu
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Universities of Pretoria and Cape Town, We partner with companies within all supported by professional bodies such the property sector who are looking as the South African Institute of to support students and we provide Black Property Practitioners additional support to students (SAIBPP), the Institute of throughout their educational Real Estate Management journey via the student and (IREM) and the South youth chapters.” African Property Owners A property manager To date, the SAIBPP Association (SAPOA). can oversee numerous Bursary Programme Tertiary institutions small properties or one has disbursed over such as the Career Excel large property. They R3-million of funding Academy and City Varsity might delegate different to students in need. also offer accredited tasks to a team. It’s a Source: SAIBPP qualifications, as do some multifaceted role that property management incorporates people skills, firms like Broll. Additionally, administration, strategy, bursaries are available for and the finer points of running students, says Vuyiswa Mutshekwane, a business. Property management SAIBPP’s CEO. “The SAIBPP Bursary remains in high demand - more so in Programme is targeted towards students tough times when landlords need their with financial needs studying property and properties run efficiently while retaining property-related studies. good tenants.
FAST FACT
“The demand for certified professionals cuts across the public and the private sector,” says Azasu. “Government needs are especially acute. My advice is to always take a formal career test or spend a day or two shadowing a property manager. It is a job that involves a lot of variety requiring technical knowledge, business savvy and a love for solving problems for people.” Indeed, the demands of the job may well push unqualified managers out of the picture. But learning institutions are accommodating for this: “For those who have already found their way into these roles without formal training, a full-time degree program might not be a feasible proposition. In that case, I would recommend the Postgraduate Diploma in Property Development and Management which runs as night classes for two years at Wits if you already have a Bachelor’s degree.”
Tenant screening, applications, and leasing
“A
t their peak, 83.11 per cent of commercial tenants were in good standing in quarter four 2016. During lockdown, commercial tenants in good standing deteriorated to 50.36 per cent - only one in two tenants were paid up,” says Michelle Dickens, MD of TPN Credit Bureau. “Retail tenants faired worst, bottoming out at 40 per cent in good standing in April and ‘recovering’ to 45 per cent in July. Industrial tenants bottomed out in May at 53 per cent and improved marginally to 58 per cent in July. The least affected sector, being office tenants, dropped to 59 per cent in May with the fastest recovery to 67 per cent in July.” These rough conditions, coupled with the onerous processes of evicting tenants, demand that sufficient tenant screening be done to avoid any legal or financial issues later on. So just how does one go about this?
“Landlords and property managers tend to lead the selection process, and credit scores are the most common way to verify the reliability of a future tenant.” – Michelle Dickens, MD, TPN CREDIT BUREAU
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FAST FACT
According to Michelle Dickens, MD of TPN Credit Bureau, prior to lockdown, in quarter one of 2020, 77.85 per cent of commercial tenants were in good standing. Dickens explains that the leading indicator of a good tenant is their past behaviour. Credit agencies typically gather and rate such information - rating commercial tenants by their rental payment behaviour, the maturity of their business and combination of directors, as well as judgments and defaults listed on the business and each principal.Landlords and property managers tend to lead the selection process, and credit scores are the most common way to verify the reliability of a future tenant. Performing a credit check requires the prospective tenant’s permission, so it’s a good indicator if they are willing to be transparent. It’s important to note, though, that a good credit score doesn’t always lead to a good tenant. It’s also a good idea to scrutinise their bank statements to identify regular payments, look for warning signs that they regularly apply for credit to mitigate poor cash flow, and ask for references from previous landlords. Michelle Dickens
COPY: JAMES FRANCIS IMAGES; SKYPIXELS.CO.ZA, FORJ, TPN CREDIT BUREAU
In difficult economic times, how does one go about screening prospective tenants to prevent problems later on?
A DV ER T ORI A L
BUCKING TRENDS IN A WEAK ECONOMY Innovation is key to reinventing growth in the logistics real estate sector post-COVID-19
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OVID-19 has confirmed global trends in South Africa, highlighting – and rapidly accelerating – the growth potential of the country’s logistics real estate sector. The shift to ecommerce driven by South Africa’s national lockdown has allowed both existing retailers and smaller ecommerce players to gear up the scale of operations. The result is that Fortress REIT’s relentless focus on building high-quality logistics real estate assets continues. “We keep building our signature state-of-the-art logistics boxes at the same cost as four or five years ago, providing tenants the same rentals that we were offering then,” says Steven Brown, CEO of Fortress. With ecommerce bucking the trend in a lacklustre economy, Brown believes that the
logistics property sector not only presents investors a lifeline in an otherwise challenged market, but also “points to the growth opportunities inherent in meeting change with innovation.”
THE MALL IS HERE TO STAY The rapid coming of age of ecommerce in South Africa has increased focus on supply chain while “COVID-19 has highlighted the importance of warehousing and the strategic imperative of carrying more stock,” says Brown. Even after lockdown, trade wars and other mounting global tensions are likely to sustain demand for storage and supply infrastructure.
“WE KEEP BUILDING OUR SIGNATURE STATE-OF-THE-ART LOGISTICS BOXES AT THE SAME COST AS FOUR OR FIVE YEARS AGO, PROVIDING TENANTS THE SAME RENTALS THAT WE WERE OFFERING THEN.” – STEVEN BROWN, CEO OF FORTRESS
Steven Brown
Brown says that while omnichannel will diversify shopping and purchasing options, South Africa is not going to see the death of retail malls. “If lockdown has taught anything it is that people need places to see other people. After lockdown, social engagement is likely to become even more important,” predicts Brown. “Even in an age of ecommerce, brands still need to engage with the consumer and that’s best achieved in high-quality retail real estate assets. Malls are here to stay, although retail is likely to become more concentrated into the last mile of big, dense, urban nodes.” “I’m impressed at the speed with which the country’s retailers have taken their ecommerce operations to scale and the innovation that this has driven,” says Brown.“Our tenants are very innovative.” Standing with tenants as they navigate today’s ‘new strange’ Fortress has gained insights into what tenants need right now as well as how these needs might evolve in future.
Innovating with our Tenants By focusing on the real estate fundamentals of location around big urban nodes with transport infrastructure and access to highways or ports, “we’ve been encouraged to build more speculative boxes based on what tenants want. We’ve also very quickly let every one of the speculative boxes that we’ve developed,” says Brown. Client-driven innovations include everything from 15-metre eaves enabling more storage per square metre and laser-levelled floors allowing maximum forklift extension to utilise the additional height. Independently pressured water supply and up-to-date fire suppression systems are also in demand. All roofing, today, is built to accommodate solar panels for independent electricity supply. “When legislation permits, in addition to meeting their own power needs, we will be able to sell to the grid,” says Brown. “Innovation and change are informed and guided by client need.” Shared lease-ownership arrangements have, for example, proved extremely resilient from an affordability and retention perspective among tenants with incomes disrupted by the lockdown. Fortress has not lost a single shared ownership tenant since lockdown started. “Tenants are also prepared to pay more for quality developments that don’t require much maintenance and include good security on flexible terms that can be adapted to support their business,” explains Brown. Fortress has also found tenants quite happy to pay a premium for leases including maintenance, insurance, pressured water supply and other onsite services and utilities, “freeing them to concentrate on their core business activities.” Fortress is seeing “the kind of innovative growth in response to disruption that is likely to continue after lockdown as industries adapt to the broad range of opportunities that this new world reality presents,” concludes Brown.
For more information: Johannesburg: +27 (0) 11 282 2800 Cape Town: +27 (0) 21 945 2960 Durban: +27 (0) 83 626 7161 info@fortressfund.co.za www.fortressfund.co.za
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A C A D E M Y
RE TA IL
UNCERTAINTY Around bricks and mortar Is retail property still a valid investment? By ANTHONY SHARPE
Innovation and growth Where are the opportunities? Steven Brown - CEO, Fortress REIT:
1. This is still a R5-trillion economy. The overall market may be shrinking, but there’s still a lot of retail spend in the country, and opportunities to capture that. Retailers need to embrace the omnichannel approach, where consumers experience a brand in store and try on their clothes or shoes, then conclude the transaction online. 2. There will always be demand for good neighbourhood centres and convenience centres, but expect less retail gross lettable area expansion than has been seen over the past 10 years. 3. It will be critical for retailers to adjust their businesses accordingly. Those that do will probably end up taking more space, and launching more concepts. 4. Retailers will be looking for better space, rather than what they historically wanted, which was just more space. This is an opportunity for people to ensure they have high-quality assets, because those will continue to perform.
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Mall of Africa, Gauteng
– pharmaceuticals, food and beverages – have managed to stay afloat.” Scott says that the tenant mix will have a distinct impact on the viability and profitability of any purchase. Pepler Sandri, associate director of capital markets for JLL Sub-Saharan Africa, says JLL has put a moratorium on taking shopping centres to market unless it’s a distressed sale. “The reason for this is uncertainty around the projected net operating income, to which the investors
apply a first-year’s forward acquisition yield,” says Sandri. “The yield might shift, but there’s uncertainty around the underlying income streams. Until one can confidently predict net operating income for the next 12 months, it’s inadvisable to take shopping centres to market.” Sandri expects negative assumptions to be applied to the net return on investment, with discounts far more substantial than they might be in three or four months.
“I think retailers will be looking for better space, rather than what they historically wanted, which was just more space.” – STEVEN BROWN Michael Scott and Pepler Sandri JLL Sub-Saharan Africa: 1. E-commerce growth will be the driving factor in supply-chain diversification. The industrial and logistics landscape will benefit from this shift. 2. Smaller centres will weather the storm better, particularly township centres. As with community centres, township malls have been pretty resilient. Sales volumes have remained consistent during the lockdown. 3. Prospective investors should watch for a fire sale of distressed assets in the fourth quarter of this year and the first of the next. 4. People are holding on as long as they can, but there will be a flood of assets coming to market, whether overtly distressed or about to be. That’s one potential area of opportunity for investors to pick up assets at the bottom of this cycle.
CHANGING RETAIL SPACES In the aftermath of the COVID-19 crisis, retailers will be examining the efficiency of everything in their operations. That’s the message from Doug Stephens, founder of consultancy Retail Prophet. “They’ll be asking questions like, to what extend can grocery stores be distribution centres for online orders? It makes perfect sense: they already have the physical footprint and warehousing capability. But for a flagship Nike store on Fifth Avenue, that doesn’t make sense. There will be clear experientially dedicated retail environments, there will be places that are purely for product distribution, and there will be places in the middle that act as both. I think we’re going to see a tremendous amount of rethinking and experimentation, but the bulk of investment will go into the digital side of businesses.”
IMAGES: ISTOCKPHOTO.COM
“T
he retail sector is definitely still viable,” says Steven Brown, CEO of Fortress REIT Limited, “especially with products such as clothing where people need to go and touch them. Now more than ever, big brands need a place for consumers to interact and get a feeling for the brand.” Michael Scott, research analyst for JLL Sub-Saharan Africa, is less optimistic, however. “I think in these uncertain times, it’s not the best investment option. Retail sales have fallen sharply, real growth in consumer spend has dropped significantly, and from an investor’s perspective there’s no guarantee of stability in terms of operating income. Line shops have really struggled; only really essential services
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