Report shows Cape Town central city still strong for investors

Report shows Cape Town central city still strong for investors

Standard Bank Towers in Heerengracht is one of many recently completed development in the Cape Town Central City.

PICTURE: ED SUTER

The latest edition of The State of Cape Town Central City Report: 2017 – A year in review has revealed that R23.954 billion of investment has, conservatively, been committed to the Cape Town Central City since the start of 2017.

This includes developments worth R3.548bn that opened their doors during 2017, as well as R4.550bn of buildings currently under construction, R1.630bn in the planning stages or proposed – R14.226bn. This is considerably up from the R16.232 billion of investment noted in the 2016 report.

Published for the sixth year in a row by the Cape Town Central City Improvement District (CCID), the report annually reflects on the economic climate in the CBD across the previous year. The latest report indicates that, despite enormous economic pressure on the country, Cape Town’s downtown continues to attract investors and maintain confidence in the property market across commercial, retail and residential sectors.

Rob Kane, chairperson of the CCID, says: “We always use the term ‘conservatively’ when we record investment being made in the CBD because we only list costs for developments for which we have been able to confirm values. We know there is already more in the pipeline, but the report reflects the figures known to us up until the end of December 2017.

“Not all developers are prepared to reveal the estimated values of the projects with which they are involved. So the actual figure would be higher than what we release in the report, but we base our information on what is available in the public domain.”

The City of Cape Town’s last official property valuation, released for the 2016/17 financial year, reflected a value at the time of over R30.628bn. The R23.954bn of new investments listed in the report could result in official property valuations in the CBD almost doubling within the next five to 10 years.

Kane says the Central City has come a long way since the publishing of the first report reflecting on 2012, when a total of 10 new developments were listed. The 2017 report now lists 48.

He says commercial property has also held its own over the past year in the Central City, with the 2017 report reflecting vacancies at 9.9%, while retail vacancies across the CBD stood at only 7% for the year under review.

Says Carola Koblitz, CCID communications manager and editor of the report: “We are particularly heartened that retail is doing well in the Central City as we know it’s a tough economy out there. This is why, each year, the report also takes a close look at upcoming trends on the horizon so that we can pass these opportunities on to our retail community and prepare them for what lies ahead, for example, in the merging of online and in-store customer experiences.”

Among the opportunities taken up from previous reports, notes Koblitz, has been the rise of the CBD’s East City precinct. Also known to the CCID as Precinct 4, this is the area that lies largely between the Grand Parade and the Roeland Street side of town.

“A year ago, when we released the 2016 Report, we called Precinct 4 ‘the precinct of possibilities’,” says Koblitz.

This was the precinct that originally experienced a flurry of activity back in the mid-2000s when a number of old office complexes were converted into residential. But since the burst of the residential bubble around 2008, this precinct appeared to stagnate for a while. It has also traditionally been the precinct with the lowest residential sales prices and rentals, and where retail and commercial rentals have also been at the lower scale of those in the CBD.

“However, we also noted that this area has a very large residential component, with a high number of students and young professionals making it their home,” says Koblitz. “It also has a large number of government departments with high numbers of staff and daily users, as well as several educational institutes, and yet – until a few months ago – very few retail establishments catering to the many and varied needs of this precinct’s different communities.

“Fast forward a year after publishing this information in the 2016 report, and suddenly the East City is blossoming. Residential blocks are attracting larger numbers of owner occupiers and the rand-a-square-metre is climbing to match that being achieved in the rest of the CBD.

“Properties that for many years have been no more than warehouses and storage facilities are turning into trendy shops, office complexes and entertainment venues. Precinct 4 is now officially booming.”

The report also indicates that residential property remains strong in the Central City, with those transferred during 2017 averaging R2.769 million a unit – up 18.5% year on year from R2.337m during 2016. The 2017 report reflects an average price of R41 287/m² compared to R33 921/m² during 2016.

“This,” notes Kane, “is a year-on-year increase in R/m² of 21.72%. However, we must also take into account that the average size of units has decreased – from 71m² in 2016 to 52m² in 2017. In other words, the Central City, as it gains in popularity, is following the same trend reflected in popular cities across the globe – residents are settling on smaller living spaces so that they can be part of a vibrant downtown.”

However, Kane stresses that developers thinking of bringing new residential units on line must understand both the CBD’s market saturation point as well as where the real needs lie.

“During the course of 2017, a total 0f 205 units were transferred, but of these only 40 were sold for more than R50 000/m². More than half of these (102 units in total) were still sold for between R20 000/m² and R39 000/m².”

Koblitz adds: “So, while there is a call for smaller units, developers must remember that a CBD thrives on having a residential community of owners and tenants who can afford to live in the CBD. Otherwise, we risk returning to the same scenario we experienced in the late 2000s when the international property bubble burst and many investors sat with leveraged properties they were unable to sell. Developers must therefore keep affordability in mind when bringing new units onto the market.”

Other features mentioned in the report include:

  • Breakdowns of all the business sectors in the Central City.
  • An in-depth look at the conferencing, eventing and visitor economy of the Central City.
  • Average residential rentals.
  • A property investment map detailing the 48 locations of current construction sites as well as those of planned/proposed projects.
  • Highlights from the CCID annual online residential survey.

The full 2017 report can be accessed at www.capetownccid.org/about-ccid/publications/The-State-of-Cape-Town-Central-City-Report/61 or call 021 286 0830.