Sandton property development continues

Posted On Friday, 13 December 2013 15:02 Published by
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Commercial real estate investors and developers continue to pour billions into the Sandton CBD.

Ndibu MotaungDespite talks of a looming oversupply of office space and concern about increased road congestion, commercial real estate investors and developers continue to pour billions into the Sandton CBD.

Sandton’s development pipeline — buildings under construction or in the planning phase — stands at a hefty 262000m² or 32 buildings, more than three times the size (83000m²) of the area’s development pipeline a year ago, according to latest figures from global real estate specialist Jones Lang LaSalle. Moreover, Sandton accounts for around 61% of all new development under construction or in the pipeline across SA.

Major projects include Sasol’s new 67 building for law firm Webber Wentzel, and EY’s new 33000m² head office. In addition, Standard Bank’s old Sandton branch office on the corner of Alice Lane and Fifth Street is making way for a 19storey office building, which will form part of a huge 75000m² development to be known as the Alice Lane Precinct.

A stone’s throw away, at Sandton City, the Liberty Group and Pareto are spending R450m to redevelop the 10-storey Twin Towers office complex, which will add another 26000m² of premium-grade office space to the Sandton market on completion in the second half of 2014.

That follows the R1,77bn extension of the mall two years ago, which added 69 stores (30000m²) to Sandton City’s retail offering. Ndibu Motaung, head of research at Jones Lang LaSalle, says next year over 160000m² of office space will be completed in Sandton. That will take the node’s commercial stock to over 1,8m m² and will officially make Sandton SA’s largest office node. Until now, the Johannesburg CBD has still been in the lead, with total lettable office space of 1,667mm², according to latest figures from the SA Property Owners Association (Sapoa). The Cape Town CBD ranks as SA’s third largest office market at 935208m².

Motaung says the influx of new tenants to Sandton is expected to increase the number of motor vehicles entering the area, particularly around Sandton’s southern border, by an estimated 8750, up 45% from the current 19500. “This will place immense pressure on the already strained infrastructure of the node, with severe traffic congestion a distinct possibility,” Motaung says.

Though the developers are constructing a number of link roads between various new buildings, Motaung says problem intersections, like those at Sandton Drive and Rivonia Road, Sandton and Grayston Drives and Rivonia and West Roads, are set to become even more congested. But she expects the planned bus rapid transit route to Sandton via Louis Botha Avenue from Orange Grove to provide much-needed relief to Sandton’s constrained road network.

A key question for property investors is to what extent, if at all, the surge in new office development will place pressure on Sandton’s vacancy and rental levels, which ultimately drive commercial property returns. Motaung believes there is little risk of the vacancy level increasing beyond the present 8,5%, given the ongoing trend among large corporates of relocating to new buildings in Sandton from other decentralised nodes. Motaung notes the Gautrain station has gone a long way to increase the area’s popularity, particularly among foreign companies that view Johannesburg as a gateway to conduct business in Africa.

“The fact that Sandton’s 8,5% vacancy rate is still some way below the national average of 11% shows the strength of demand for Sandton offices,” she says. Corporate tenants are clearly prepared to pay a premium for a prime Sandton address, with A-grade rentals at an average R190/m², the highest of all SA office nodes, according to Sapoa figures. However, it’s not only into new developments that money is flowing. Acquisition of existing buildings in the area has also picked up considerably over the past two years.

Research by commercial property data analytics group SA Revealed shows that the value of investment activity in Sandton weighed in at R1,348bn for the year to date (January to November). The figure includes sales of existing buildings with price tags that exceed R10m. That’s more than double the R594,75m in total transaction value recorded there two years ago.

JSE-listed property funds have been particularly active in acquiring commercial buildings in Sandton, accounting for 33% of all transactions for the year to date versus only 15% in 2011, according to SA Revealed.

Last modified on Friday, 13 December 2013 15:37

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