Despite the country’s struggling economy, there has been a noticeable increase in the rate of commercial property development in South Africa’s main metropoles this year – particularly within the Cape Town and Johannesburg central business districts (CBD).
Increased commercial property development in the Cape Town and Johannesburg CBDs is driven by a handful of large corporates operating within the professional services industry that are either constructing their own buildings, or who are developers building commercial office space for corporates to tenant. This creates large vacancies in older, secondary commercial properties where these businesses once occupied.
Examples of major commercial property developments taking place in these metropoles include the Discovery global headquarters in Sandton – the largest single phase commercial office development in Africa, which is being built by Discovery – as well as the KPMG Place development going up in Cape Town’s Foreshore precinct, due to be completed in 2018, which is an example of a property that was built by developers with the aim of securing a large corporate tenant.
This kind of commercial development may potentially showcase a false sense of market activity and confidence to investors and developers who may not have the means, or financial backing, of these big corporate players.
These new developments do, however, create attractive investment opportunities within the secondary office and industrial node market. As a result of these companies moving into new developments, there is a lot of property being released into the market by listed property funds, which opens up a lot of opportunity and creates a strong secondary buyer’s market at lower and more sustainable pricing for tenants and companies wanting to buy their own offices.
As in any market, there are always going to be pockets of opportunity which astute investors and developers will take advantage of. Even in a slow market, there will always be activity. The important thing, from an investment perspective, is to always take the bigger picture into account and avoid getting swept up in alluring high-cost commercial property developments that may not be conducive to the current market.