Property Market Review the Durban Metro Region
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EThekwini Property Market Review 2007/2008 PPROPERTY MMARKET RREVIEW TTHE DDURBAN MMETRO RREGION ETHEKWINI MUNICIPALITY ECONOMIC DEVELOPMENT UNIT 2007-2008 DOCUMENT PREPARED BY: Viruly Consulting (Pty) Ltd Contribution from Ramesh Amrit (2006) (Letchimah Daya Mandindi) LDM PROPERTY RESEARCH A Division of LETCHMIAH ⏐ DAYA ⏐ MANDINDI EThekwini Property Market Review 2007/2008 CONTENTS EXECUTIVE SUMMARY 4 1. INTRODUCTION 6 1.1 THE BRIEF 7 1.2 REPORT STRUCTURE 7 2. THE SOUTH AFRICAN PROPERTY MARKET 8 2.1 THE MACRO ENVIRONMENT 8 2.2 MACRO PROPERTY TRENDS 10 3. THE ETHEKWINI MUNICIPALITY IN CONTEXT 16 3.1 THE ECONOMY 17 3.2 THE NODAL PROPERTY MARKET 21 3.2.1 THE DURBAN CBD 23 3.2.2 THE CENTRAL NODE 25 3.2.3 THE WESTERN NODES 26 3.2.4 THE NORTHERN NODES 29 3.2.5 THE SOUTHERN NODES 32 3.3 THE SIZE OF THE COMMERCIAL MARKET 34 4. PROPERTY MARKET INDICATORS 37 4.1 THE DURBAN CBD 38 4.2 THE CENTRAL NODES 39 4.3 THE WESTERN NODES 40 4.4 THE NORTHERN NODES 44 4.5 THE SOUTHERN NODES 46 5. INVESTMENT INCENTIVES AND URBAN REGENERATION 48 5.1 REGENERATION PROJECTS 50 5.2 THE POINT WATERFRONT 51 5.3 THE DURBAN INVESTMENT AGENCY 51 5.4 THE URBAN DEVELOPMENT ZONE 53 6. CONCLUDING REMARKS 55 7. REFERENCES AND NOTES 57 All care has been taken in the preparation of this document and the information contained herein has been derived from sources believed to be accurate and reliable. Viruly Consulting (Pty) Limited does not assume responsibility for any error, omission or opinion expressed as well as investment decisions based on this information. 0046/07/FV Page 2 24/10/2007 EThekwini Property Market Review 2007/2008 EXECUTIVE SUMMARY The South African property market is benefiting from a strong macro-economic environment, characterized by a stable inflation rate and improved prospects for economic growth. This is translating into a decline in vacancy rates, and rising rentals and capital values in most sectors of the South African property market. The eThekwini Municipality is underpinned by strengthening conditions in the manufacturing, chemical and tourism sectors. Moreover, the expected growth of the harbour will continue to pose opportunities and challenges for the demand of suitably located land. The eThekwini retail, office and industrial markets are currently showing strong growth mainly due to the favourable macro commercial market fundamentals and this has resulted in positive real investment returns in most sectors of the market. Although the 2005 investment returns produced by the Investment Property Data Bank (IPD) were at their highest since the data was collated in 1995, IPD indices reporting returns to December 2006 show a slight downward adjustment in returns, the sharpest decline being in retail which has dipped below the 30% level. Industrial and office returns have experienced less of a drop with industrial sector remaining above the 30% level and the office sector also showing relative stability. From a micro perspective, demand for industrial and office space remains buoyant in major nodes of the eThekwini market. Such nodes include the Berea, Umhlanga/La Lucia Ridge and Westville. Moreover, the CBD is also showing increased demand, especially from smaller tenants, and ABSA’s decision to reinvest in the CBD, through an upgrade to their existing building, and Standard Bank’s decision to relocate to the Kingsmead Office node is reflective of renewed investor confidence and the efficacy of incentives created by the UDZ tax accelerated depreciation allowances. Added to this, nodes such as Kingsmead are being supported by public sector initiatives. These include the recently completed ICC Arena, being the extension to the existing convention centre. Kingsmead is also expected to benefit from the 0046/07/FV Page 3 24/10/2007 EThekwini Property Market Review 2007/2008 development of a proposed international sports precinct supported by the eThekwini municipality and its joint partnerships and Durban Investment Promotion Agency. Such organisations are also involved in facilitating urban regeneration projects such as Warwick Junction, the Point development, and the Beachfront. The flagship development of uShaka Marine Theme Park has provided a catalyst for the further development of the Point into a vibrant mixed-use development. Therefore, it can be argued, that the market is benefiting from improved market conditions resulting from strong market fundamentals and appropriate public sector interventions. The future spatial form of the local economy is also being influenced by the forthcoming development of the Dube Trade Port and the King Shaka International Airport. A disaggregation of market statistics suggests that rentals are generally on the rise reflecting higher building costs and strong market fundamentals. In Umhlanga/La Lucia and Westville, rentals for newer stock are driving peak rentals to levels above R100/m² gross for new stock. The retail market is also showing signs of strong investment returns and this is being matched with proposals for new retail developments, especially in areas that in the past have been under-catered for. Reflecting national trends, interest in this sector is extending into new nodes such as Umlazi and other townships in the municipal area. Consequently, development activity is also spreading itself to the southern commercial nodes. These nodes have for decades provided good locations for industrial sector tenants that need to be located in the South Durban Basin and the port. With the proposed relocation of Durban International airport, the potential exists for good industrial land to be released into the market. However, there are question marks over the future use of this land due to its potential to accommodate port expansion. The future success of the metropolitan property market will also rely on ensuring that appropriate city integration is realised, and this will mean the integration of ‘home, work and play’ for different income groups. This will also require a careful assessment of transportation requirements, a sector which seems to be lagging 0046/07/FV Page 4 24/10/2007 EThekwini Property Market Review 2007/2008 behind in the urban restructuring process. The challenge lies in ensuring that households are able to seek locations that optimise the ability to secure employment. For the South African property investor, the challenge will lie in correctly reading the major trends that drive the municipal economic base and developing properties that support the municipal economic trajectory. Success in achieving this requires an appropriate co-ordination between the private and public sectors. 1. INTRODUCTION The role of the eThekwini Municipality’s Economic Development Unit (EDU) is to guide the municipality in optimising economic development, job creation and redistribution opportunities for the residents of the eThekwini region. A specialised unit has also been set up to focus on private investment and development promotions. This unit has the following roles: To advise the local government on issues affecting the private sector and investment. To implement local government programmes to support private sector development and investment. To advise potential investors on issues affecting their business interests in the Durban Metro Area (eThekwini Municipality). This report aims to assist the EDU’s role in encouraging private sector investment through the dissemination of market information to investors. The report primarily considers the status of the Durban Property Market as well as development and investment opportunities in the municipal property sector. 0046/07/FV Page 5 24/10/2007 EThekwini Property Market Review 2007/2008 1.1 THE BRIEF The report is focused on the following: An introduction to the property investment environment that includes a broad overview of the macro South African commercial property market, paying special attention to the major market trends impacting on the South African property market. Economic development, land strategy and other objectives of the eThekwini municipality that may optimise property development and investment. Emphasis on special features of Durban and other regional attributes such as tourism attractions and its unique features. Discussing the prime industrial, office and retail property nodes of Durban. Providing updates on major property and infrastructural projects. Highlighting institutional and other factors that investors should take into account when considering entering the Durban property market. 1.2 REPORT STRUCTURE The report is structured as follows: Section 2: The section will discuss macro trends affecting the property market in the Durban property market. Section 3: Introduction to eThekwini Municipality – the administrative local government of the Durban property market – an overview of the socio-economic profile of the municipality, and general characteristics of the region. The section will also introduce the main commercial and industrial nodes of the municipality - their characteristics and general development trends. Section 4: Analyses the property market nodes, characteristics, property indicators and parameters of the different nodes in the urban property market. Section 5: Discusses political objectives that support property development as well as important policies in place from government level. Major development 0046/07/FV Page 6 24/10/2007 EThekwini Property Market Review 2007/2008 projects led by the public sector and supported by the private sector in eThekwini will also be emphasised. Section 6: