New money for newly fashionalbe Newtown

Posted On Friday, 30 July 2004 02:00 Published by eProp Commercial Property News
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Developers get edgy over competition from the public sector.

Property-Housing-ResidentialA debate is brewing over whether public-sector development agencies should develop commercial property.

Critics say they should leave it to the experts, but the Johannesburg Development Agency (JDA) has a strong case for building offices in Newtown - if only this once.  At the heart of the debate is 1 Central Place on the south western side of the Newtown cultural precinct.

The 4 700 m² development will feature prime offices and ground-floor shops.  But private developers are edgy about the JDA developing commercial space. They say it defeats the agency's goal of attracting private developers and investors into regenerating areas.

  JDA Newtown development manager Xoliswa Ngema points out that plans for 1 Central Place started two years ago, at a time when private developers simply weren't interested in Newtown.  "We had a secure tenant on a long lease but no developer," she says.

"So we decided to kick-start Central Place ourselves."  The Gauteng Tourism Authority is taking up almost half the offices on terms that would make most developers drool: a 10-year lease, demand-led by a government tenant at a rental in line with A-grade space in the northern suburbs. 

The development costs for 1 Central Place are estimated at R6 000/m² and through-rentals are tipped to be around R70/m² gross.  "Newtown needed a catalyst," says Finlay & Associates marketing director Nicole McLachlan, who is handling leasing in Newtown for the JDA. "The R300m infrastructure was invisible and we needed to draw attention to it." 

Ngema concedes that the JDA isn't keen on holding property and may consider selling the building on completion. "We're looking at different options," she says.  The remaining stands at Central Place will be handled by private developers such as C-Max, which was recently awarded the tender to develop 20 000 m² of mixed-use projects on two other sites in the precinct. Ngema says the remaining sites will be negotiated individually.

 The JDA has opted not to sell the land but to make it available on a leasehold basis instead. Even sceptics agree that private property development is picking up in Newtown and developers say it's largely thanks to JDA initiatives. 

Developer Pat Flanagan and a group of private investors, including planners Urban Solutions, were the first to take the plunge into Newtown. They bought 12 000 bulk metres to the west of the M1 freeway, in what has been dubbed The Mills precinct.  "We wouldn't even have looked at Newtown without the infrastructure and urban planning funded by the JDA," says Flanagan, pointing to the new Carr Street off ramps from the M1 and the Nelson Mandela b ridge as examples. 

The first project was to re develop 4 500 m² of studio and creative space at 66 Carr Street, which is now fully occupied. Tenants include Business Arts SA, the Media Diversity Development Agency and Urban Solutions' own head office.  "Redevelopment costs were R1 500/m²-R2 000/m², excluding land, which isn't comparable with new prime offices such as the JDA is developing at 1 Central Place," says Flanagan. 

Gross rentals at The Mills range from R43/m² to R45/m²; operating costs come in at about R8/m². Flanagan says they wouldn't even consider selling for a yield of less than 12%.  In fact, the investors are so happy with their first foray into Newtown that they are planning a second phase.

The Flour Mill is located opposite 66 Carr Street and plans for it could include loft apartments.  But, argues Flanagan, "The public sector should be a facilitator and a generator of infrastructure. It should never compete with private developers." 

Another focus of activity is the newly let Wolhuter Street precinct, a retail and entertainment strip adjacent to the Market Theatre. Nando's will be opening an outlet and there are plans for a cigar bar and nightclub.  But demand has not picked up across the board.

Deon Feinblum, director of property fund ApexHi, says that though Newtown has improved dramatically, he has not seen any upswing in inquiries or demand for office space in the fund's buildings. Admittedly, these lie on the periphery of Newtown, somewhat removed from activity at The Mills and Central Place. 

"We own 11 Diagonal Street, which is 40% vacant, and West Street parkade, where only two out of five levels are operating," says Feinblum.  He says excitement about Newtown isn't likely to come from large corporate tenants - not yet, anyway.

Last modified on Wednesday, 14 May 2014 17:29

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