By Pauline Larsen

Find places far from the herd but apply traditional property rules, they say

At last, SA developers are breaking free of their herd mentality. They are seeing new opportunities beyond the usual prime offices and regional shopping centres.

Perhaps more investors could show creative flair too. The secret, say the few who have done so, is not to stray too far from traditional property principles.

Grant Thornton director Christelle Grohmann, for one, underlines the need for innovation in the hotel, leisure and retail sector. Retail tourism is a growing market, says Grohmann, citing the Riverside Mall in Nelspruit, which serves shoppers from Mozambique.

"There's a growing demand for hotels connected to regional shopping," she says. "Centres such as Eastgate in Bedfordview are tapping into this."

In the inner city revitalization may warrant the refurbishment of downtown hotels.

Another opportunity, say hotel analysts, is integrated beachfront resorts aimed at the world tourism market. Theme hotels are also being considered locally, as are multigrade hotels with a choice of service standards.

Look at listed property in new ways, too, suggests Provest MD Angelique de Rauville. She mentions five property warrants launched last year, offering investors higher risk than conventional listed funds, but also greater potential for gain.

Other opportunities are dual listings, residential and downtown funds and securitised property fund debt, once the sector's market capitalisation reaches a critical mass of more than R30bn.

Redefine Income Fund CEO Brian Azizollahoff says listed Prima Property Trust offers something different. It aims for higher yields by buying smaller, A-grade properties at below R12m apiece, too small for other funds. Even the fund's structure is unusual, with managers each running small portfolios.

Azizollahoff says there are many overlooked property markets that deserve attention, such as Hazyview, Rustenburg and Vereeniging. "Apply traditional property thinking to unconventional locations," he suggests.

Certainly, that's what private developers in inner cities throughout SA have done in the past year.

Seasoned property developer Pat Flanagan is one of the investors in the western Newtown (Johannesburg) precinct named The Mills, which consists of eight buildings and 12 000 bulk metres of space that can be developed. It is intended to appeal to funky, creative tenants and will include a bar and restaurant at the top of the mill silos and a songwriter's laboratory for aspiring talent.

"Like New York, Johannesburg will regenerate through the creation of precincts," says Flanagan. "The provincial government precinct is one, the Newtown cultural precinct another."

Flanagan agrees that investors should apply good, old-fashioned property principles to new locations. For instance, The Mills is being developed on sound financial ground. The costs of entry are low, office rentals being around R35/m² net and operating costs R6-R7/m².

Andisa Securities property analyst Len van Niekerk spotlights the redevelopment of 78 Marshall Street, in Johannesburg, which was recently refurbished to A grade as the new corporate headquarters for Andisa Capital.

"Once you're inside, it's like sitting in the heart of Sandton, but gross rentals are less than R30/m²," says Van Niekerk.

Then again, perhaps inner-city investment is no longer unconventional. The Central Johannesburg Partnership's Neil Fraser concludes in his year-end report that there is about R5bn of downtown investment on the go, and estimates that as much as 40% is private.