Sibonelo Radebe reports on how a rash of public sector building projects is propping up South Africa’s commercial property industry.

South Africa’s commercial property industry is focused on the public sector. From all directions, the public sector is rolling out multi-billion rand commercial property development projects that form part of a national reconstruction and development plan. The plan is primarily aimed at resuscitating economic activity in areas neglected during apartheid.

But take the public sector out of the equation and the South African commercial property industry would be in a fairly desperate situation. The problem is oversupply.

A number of popular commercial districts across the country are sitting with very high vacant space, say the South African Property Owners’ Association (Sapoa) quarterly office vacancy surveys. In the north of Johannesburg, the Sandton district, Africa’s new financial and information technology centre, had an office vacancy rate of 13.4% in the survey for the three months ended March.

A 10-year model developed by JHI Real Estate, one of the biggest property services companies in the country, suggests that it will take more than six years for the vacancies to be wiped out. “While take-up rates are high, new space coming into the market continues a trend of supply outstripping demand by about 60%,” says JHI senior researcher Mark Schneider.

The oversupply can also be blamed on poor town planning regulations, which has allowed new developments to spread everywhere and anywhere. The national department of local governance has vowed to stop the urban sprawl, and the creation of mega cities is one step in the right direction.

Interesting times

A report by Nedbank Property Finance, a division of banking group Nedcor, says: “Property investors can look forward to some new and interesting opportunities in the commercial property sector.”

This is because of a movement in the property market place towards public sector projects, says the Nedbank report. It adds that industrial districts around industrial development zones will be the focus of investors this year.

One public sector project that has generated enormous excitement in the property development sector is a Gauteng provincial government initiative called Blue IQ.

A multi-billion rand project, Blue IQ is expected to release enormous development opportunities. Blue IQ general manager Oren Fuchs says the project will unlock investments worth R100m. Blue IQ’s key feature is a R7bn high speed train project called Gautrain. This will connect Johannesburg International Airport with key districts of the province.

Major commercial opportunities are expected to open up in areas around the train’s sub-stations. While boosting economic activity, Blue IQ is also aimed at enhancing the provinces’ tourism infrastructure in line with the national agenda of making South Africa a premier international tourist destination.

Property projects

Two multi-million rand projects – Constitutional Hill in Braamfontein and Newtown Precinct – are expected to roll out property development opportunities varying from commercial to retail and leisure facilities.

Across the country, tourism-related projects are being planned. In the Western Cape, the Cape Town International Convention Centre is under construction. This multi-billion rand project offers other complementary amenities including a huge hotel and entertainment facilities.

Mr Fuchs says the intervention of the public sector has radically changed the property development landscape. The marked change is the greater emphasis placed on sustainable development. “As the public sector our role is not only to feed the commercial market but to ensure sustainable development,” he says.