Ian Fife

Melrose Arch is a test of new urbanism

Some players seem to want it to fail

Two big new tenants are putting colour in the cheeks of recession-hit Melrose Arch, Johannesburg’s iconic mixed-use development. The owners say it’s on its way to success. Yet some serious property developers seem determined that it will be a failure.

Winning this argument is vital to the “new urbanist” movement in SA, pushing a pavement café city lifestyle. The urbanist movement is a reaction to the social stress that resulted from planners’ increasing separation of work, shops and homes, starting in the early 20th century. It aims to revive healthy lifestyles.

If Melrose Arch, as SA’s most visible residential, retail and office project, isn’t profitable enough, developers could abandon plans for similar projects worth many billions of rand.

Western Cape transport & public works MEC Robin Carlisle’s new policy — to develop the province’s vast Cape Town property holdings into SA’s most ambitious integrated development — could also be compromised. He wants mixed-use development to combine thousands more rich and poor households in a “work, live and play” CBD. This would make transport and infrastructure more cost-effective and invigorate social life.

But Carlisle will have to rely on the private sector to buy into his plans and come up with some quick wins to get credibility.

What is convincing European, Australian and American developers that mixed-use, open precincts work is research showing investors have been getting higher returns from mixed-use than single-use investments. Research by UK property services company King Sturge shows mixing uses — say, residential, office and retail — in a single building produces higher rents and better returns than if separate buildings are used on one site.

But most SA developers are clinging to the safety of separated old-style malls, office buildings and walled residential precincts, and are quick to put down any change from their 50-year-old formula.

The new lettings will improve the feasibility of Melrose Arch. TWP, SA’s largest design, engineering and construction group, has taken 10000m² of office space and could take another 15000m² after its recent merger with construction company Basil Read. And the FM has learnt that Liberty Life is close to signing up for 30000m² in the precinct. At a rent of R160/m², the two lettings would add close to R9m/month to Melrose Arch’s income stream. The latest Sapoa office vacancy survey shows less than 10000m² of the project’s already built offices of 110000m² are still available to let.

Initially the rent will be a lot lower, because the developers have signed up TWP at the cost of guaranteeing the rent in TWP’s now empty Rivonia offices, and have probably given it generous tenant installation allowances. This is apparently enough to prompt critics to predict doom. “They need rentals of close to R200/m² to get the kind of returns investors want,” says one of the many developers who are happy to talk but not to be named. “After the rent they must pay on TWP’s old offices, they can’t be getting more than R100/m² They must be bleeding.”

But James Wilson, CEO of Melrose Arch development partner Amdec, says this criticism is a typical thumbsuck by people who want to avoid the inevitability of mixed use. “We are satisfied with our returns at much lower rentals than R200,” he says, “and so are our bankers, who have invested R2,5bn and are about to inject another R2bn.”

Most criticisms of Melrose Arch have little to do with urbanism. Another developer says: “Amdec and Property Partners have ignored some of the basic rules of retailing. They’re in the middle of one of the most competitive retail areas: Killarney Mall to the south, Norwood Pick n Pay Hypermarket to the east, Rosebank to the west, Woodmead Mall to the north and many smaller but strong centres in between. Their only potential uniqueness is to build on their leisure and entertainment, but they have no cinema.

“And the way the 37000m² of retail is set out is incoherent, where customers want simplicity. For instance, there should be a clear path between the two anchor stores, Woolworths and Edgars. But they’re on different levels and around the corner from each other.”

One of SA’s most experienced property developers, Pat Flanagan, isn’t prepared to assess Melrose Arch directly, but says the weakness of all projects with uncovered streets and walkways is just that — they’re open to the weather. “Walk through a centre like Melrose Arch on a rainy day and see how many shoppers are there,” he says. “Around the world, developers are moving back to enclosed centres after trying open ones. But the architecture and atmosphere are good.”

Flanagan’s latest venture, the 10000m² Morningside centre, fulfils the primary role of a centre, he says. “Retail developers must provide a quality environment, protected from the weather and where shoppers can easily move from one store to another — that includes them moving in straight lines.” Shoppers drive straight off the street onto the centre’s parking and walk directly into an enclosed, airy centre. The restaurants open onto the parking to give the feel of a street scene.

Wilson, who is managing Melrose Arch, says much of the criticism is misguided. “Yes, our retail has been hit, but that’s due to the recession, which has hit most retail badly, and the usual adjustments of a newly opened centre. It is not the openness or the design. Trade picked up enormously over November and December and some retailers are doing brilliantly.

“Our critics choose to remain ignorant about new urbanism. It’s about much more than a retail experience, it’s about the way we live successfully. Most developers are scared of pioneering ideas and fear the change. Consumers have become indoctrinated into thinking that the retail mall is as good as it gets.”

They also ignore the fact that a development like Melrose Arch is phased over years, says Wilson. “We are only halfway. Development will include a focus on leisure, hotels, restaurants, theatre and cinemas. We will emphasise apartments for young people looking for a Manhattan lifestyle in a unique urban environment.”

He says the development isn’t a typical mall or office building. Its feasibility isn’t based on return on total costs, but the margin on the properties he develops and sells. “We’re happy with the values we’re creating.”

Urbanist John Chapman of developer Rabie, which owns Century City in Cape Town, says he now has 3000 front doors in his project. Melrose Arch has about 35. “I stayed at Melrose Arch in December,” he says. “It’s a perfect venue and a great place, but its residential entry level is too high and there are too few homes.”

This is a dialogue of the deaf between an old and a new language of modern living. But the evidence is overwhelming of the social damage wrought by the old, and the healing that people find in the new. For this reason, it’s important that Melrose Arch wins the war.

“Our critics ignore the fact that a development like Melrose Arch is phased over years. We are only halfway”

— JAMES WILSON

Source: Financial Mail