SEIA FOR DUBE TRADEPORT COTTONLANDS INDUSTRIAL PARK – DRAFT 1 FOR COMMENT – 27/02/2017
Socio Economic Impact Assessment Tradezone 4 (Cottonlands) - 2016
DUBE TRADEPORT COTTONLANDS INDUSTRIAL PARK SOCIO- ECONOMIC IMPACT ASSESSMENT
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Prepared by:
Urban-Econ Development Economists P O Box 50834, Musgrave, 4062 Tel: 031-202 9673 Email: durban@urban-econ.com
Prepared for:
Element Consulting Engineers PO Box 1071, Westville, Durban,3630 Tel: 031 266 9699
Page 2 of 62 SEIA FOR DUBE TRADEPORT COTTONLANDS INDUSTRIAL PARK – DRAFT 1 FOR COMMENT – 27/02/2017 TABLE OF CONTENTS
1 Introduction ...... 5
2 Spatial Analysis ...... 10
3 Socio-Economic Profile ...... 15
4 General Market Trends ...... 18
5 Office, Residential, Retail and Industrial Trend Analysis ...... 22
6 Market Assessment ...... 38
7 Socio-Economic Impact Assessment ...... 49
8 Recommendations ...... 57
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9 Mount Moreland – Socio-Economic Trend Analysis ...... 60
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1 INTRODUCTION
INTRODUCTION
Dube Tradeport is centred around a 60-year masterplan which is illustrated in the image below, utilises 2 040 ha greenfield site. The first phase has been completed by the KwaZulu-Natal (KZN) provincial Government and Airports Company South Africa (ACSA), with an investment of R 8 billion.
Dube Tradeport consists of four strategic development zones. These include; Dube Cargo Terminal, Dube Trade zone, Dube City and Dube Agri-Zone. Trade Zone 4 falls outside Dube City, located just 5 kilometres south west of KSIA and is proposed to include premium office, retail, residential and industrially serviced area in an urban precinct. This business support function forms an important aspect of the strategic plans for Dube Tradeport to be positioned as South Africa’s premier logistics platform.
Map 1: Dube Tradeport 60 Year Masterplan
Source: Dube Tradeport, 2014
PURPOSE OF THE STUDY
The purpose of this study is to determine the potential socio-economic impact of the proposed Trade Zone 4 development on the neighbouring areas of Dube Tradeport (Verulam, Tongaat, La Mercy and surrounds) through an initial scoping process, followed by a detailed input into the EIA process.
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The socio-economic impact assessment is a key requirement for the Economic Impact Assessment (EIA) process prescribed by the National Environmental Management ACT (NEMA) of 1998, as amended.
REPORT METHODOLOGY
The following figure illustrates the methodology used in undertaking the study.
Figure 1: Report methodology
Orientation and Policy Review The purpose of the first step was aimed at obtaining all background information pertaining to the study area and the proposed project. An intensive work session with the client and project stakeholders aimed at gaining clarity on: Existing role players and interested/affected parties; Existing information and studies previously undertaken within the study area; Timeframe and measurable deliverables and milestones.
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It was necessary to delineate the area into primary and secondary areas based on the information overview and on close consultation with the client and other professional teams. It was also crucial to undertake site visits for orientation purposes but also to obtain site specific intelligence.
Baseline Information and Trend Analysis The purpose of this step was to review and collate all data to be able to compile a practical and up-to-date quantitative profile of the study area to serve as baseline for the SAM modelling exercise. It is important to define the study area as a sub-region and therefore the profile of the larger region must be interpreted and refined as a sub-regional socio-economic profile.
Development Projections Projections were undertaken and derived from national growth rates; sectoral production trends as well as realistic local sectoral growth expectations resulting from physical, nodal and other planned changes in the area. These changes feature as a structural adjustment of the economy over time.
The focus was to develop options, taking cognisance of the following: Sectoral and structural economic changes; Strategic development projects; Infrastructural planning; The type and extent of activities and land-uses; The type of economic activities and potential projects; Density of land uses and activities.
Demographic and socio-economic trends: Population projections were made based on existing demographic knowledge and models. These were augmented with the verification data and up-to-date growth expectations. These focussed on the regional economic growth expectations due to proposed projects and development initiatives.
Economic Development Potential: The development potential of the economy was determined and in doing so the historical growth trends and the strengths and weaknesses of the economy was addressed. A list of priority and growth areas of the sub-regional economy that reflects the highest level of development potential and comparative advantages was compiled. The economic information was interpreted in terms of the impact on the household sector. The underlying principle is that economic growth will act as stimulus for urban growth and hence domestic demand for services and infrastructure.
The potential analyses conducted were interpreted in terms of economic development opportunities. These opportunities reflected the inherent development potential of the economy and in exploiting these opportunities, the development potential of the economy can be maximised. These opportunities are presented as various development scenarios.
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Impact Modelling The focus of this step is to determine the economic benefits and impacts of the proposed project to the area and broader region. A computerised model framework based on Urban-Econ’s in-house Input-Output Model was set up and calibrated in accordance with the principles underlying the following User Requirements Specifications (URS): Spatial allocation options Economic growth and multiplier analysis Scenario simulation Sensitivity analysis
This impact modelling was done by populating the SAM model with the quantified potential effects of the project to quantify the spin-off effects in the economy. This illustrates the total benefit and dis-benefit, as well as the net impact of the project over time.
When considering the impact of proposed interventions, several economic and user impacts can be distinguished. These include: o Direct user impacts o Indirect and Induced impacts o Construction and maintenance spending impact
Comparative Analysis of Options The purpose of this step was to take cognisance of all work and simulation modelling done up to this stage and undertake a comparative and integrated evaluation of options.
Net economic impacts: Any development can be associated with both positive and negative economic impacts, where the former represents the increase in value added, employment, income, and tax base that would result from the proposed project, while the latter reflects the loss of economic values by the existing establishments as a result of the implementation of the proposed project. Since the extent of positive and negative impacts can differ significantly, it is important that the net effect is determined, particularly when comparing different options.
The focus of this step was to integrate the assessments conducted in the previous steps to compare the total direct and indirect effects, to provide a basis for decision making and selection of options. The analysis determined and quantified the extent and magnitude of the impacts and effects. The various measures of economic impacts have very different interpretations: Total employment reflects the number of additional jobs created by economic growth. This is the most popular measure of economic impact because it is easier to comprehend than large, abstract Rand figures. The total employment can be interpreted in terms of generally accepted definitions of job creation. Aggregate personal income rises as pay levels rise and/or additional workers are hired. Either or both of these conditions can occur as a result of business revenue growth. As long as nearly all of the affected
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workers live in the study area, this is a reasonable measure of the personal income benefit of a project or program. Value Added (which is normally equivalent to Gross Domestic Product or Gross Regional Product) is a broader measure of the full income effect. This measure essentially reflects the sum of wage income and corporate profit generated in the study area. However, in today’s increasingly global economy, value added can be an overestimate of the true income impact on a local area, insofar as it includes all business profit generated there. Business Output (also referred to as revenue or sales volume) is the broadest measure of economic activity, as it generates the largest numbers. It includes the full (gross) level of business revenue, which pays for costs of materials and costs of labour, as well as generating net business income (profits). Property Values are also a reflection of generated income and wealth. When property values rise in a community as a result of increasing demand for property which may be a direct consequence of increasing aggregate personal income or investment of business profits.
Implications The purpose of this step was to identify the implications of the proposed project in terms of regional economic impacts and assess the implications of the impacts. The regional profiling undertaken in the preceding steps was utilised as a baseline. Specific variables to evaluate the impacts included: An Economic benefit analysis to compare the effects and impacts on the economy due to the project. The impacts will be addressing at least the following aspects: Sectoral changes Market implications Regional economy effects Provincial and National economic effects International Trade changes Integrative effects on network and capacity.
The results of this step illustrated the magnitude of the multiplier effect of the proposed project, the quantitative and qualitative data provided an objective, market based perspective on the regional economic effects of sector investment.
Recommendations This section concludes by formulating a set of recommendations with respect to mitigation and management of risks. The results of the impact analysis were interpreted and unpacked to address the potential impacts of the proposed project as follows: Changes in total revenue and income for the economy (business sector, tourism activities, economic activities and housing); Changes in local jobs and household income; Changes in property values and intrinsic values; Detrimental effects on the local environmental aspects related to the above.
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2 SPATIAL ANALYSIS
LOCATION
The proposed site is located south of the Dube Tradeport within the eThekwini Metropolitan Municipality. The following map gives an indication of the location of the proposed site (area bordered in purple below).
Map 2: Location of proposed site
Source: Google Earth, 2016
MARKET DELINEATION
The study area covers the north of eThekwini directly within Mount Moreland, accessing portions of Umdloti, La Mercy, Verulam and Desainager within its primary market catchment area. The following table highlights the main places that forms part of the study area.
Table 1: Main Places within the study area
Ballito Hambanathi Mount Moreland Tongaat Verulam Blackburn Hazelmere New Glasgow Tongaat Beach Westbrook Desainager La Mercy Ocean Drive-In Umbhayi Genazzano Mawothi Phoenix Umdloti Greylands Mount Edgecombe Redcliffe Umhlanga
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The following map gives an overview of the market delineation and the study area.
Map 3: Study Area of Proposed Development
Source: Urban-Econ, 2016
SPATIAL PLANNING CONSIDERATIONS
This section aims to locate the proposed development within a local spatial policy context and highlight the strong alignment with planning and development frameworks.
eThekwini Spatial Development Framework The Dube Tradeport Node is shown as an Economic Investment Node on the eThekwini Spatial Development Framework (SDF) map and requires major investment. The following map indicates the 2015/16 Revised Spatial Development Framework for eThekwini.
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Map 4: Revised Spatial Development Framework, 2015/2016
Proposed Site
Source: Revised Spatial Development Framework, 2015/2016
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Furthermore, the SDF identifies the Dube Tradeport area as an Emerging Sub-Metropolitan Node. The SDF describes Sub-Metropolitan Nodes as follows: Sub-metropolitan nodes provide accessible day to day business, transport and social services for existing and future local communities. These nodes serve sub-metropolitan areas of large districts and are well connected to metropolitan public transport systems and to their adjacent residential areas. They are generally situated on mobility spines supported by mobility roads and have access to urban freeways offering a full variety of higher order uses with a sufficient mix that may be in tight competition with other such nodes.
The SDF describes Dube Tradeport as follows: The Dube Trade Port (DTP) has been established between the two sea-ports of Durban and Richards Bay to harness the value of having an air logistics platform. DTP is developed to promote access to global trade and open up new opportunities for production and export of high –value perishable products and manufactured goods. It is expected to act as a catalyst for economic development and labour intense growth throughout KZN province. The massive infrastructure investments in the Dube Tradeport Aerotropolis will need to be optimised to fulfil its logistics promise and the Richards Bay port and industrial complex will work on the development of its growth path.
North Spatial Development Plan The North Spatial Development Plan (SDP) indicates that Dube Tradeport is located within the Northern Urban Development Corridor and states that “Dube Trade Port Logistics Hub is located within this corridor and new development opportunities associated with the hub must be integrated with existing urban development”.
Furthermore, Dube Tradeport has been identified as a Metropolitan Node as well as an opportunity area within the North SDP. The North SDP describes the Dube Tradeport as follows: The establishment of the new King Shaka International Airport which will form an integral part of the national logistics platform of the country and as such provide the base for the establishment of a new multi- functional logistics and intermodal transportation node that will provide a range of business, logistics, industry and service opportunities for the region and for the surrounding local areas.
The actual site of the proposed development is indicated as a Future Business Park on the Composite Northern SDP Map. This map, together with the location of the proposed site, is indicated below.
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Map 5: Composite Northern SDP Map, 2013
Proposed Site
Source: North Spatial Development Plan, 2013/2014
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3 SOCIO-ECONOMIC PROFILE
This section focusses on the socio-economic profile of the study area. This socio-economic profile analysis fulfils an important role in the indication of development potential within the relevant area. The socio-economic profile trends are shown in the graphic below.
Figure 2: Socio-Economic Profile for Catchment Area, 2016
Source: Quantec, 2016
DEMOGRAPHICS
A population of approximately 497 500 is recorded within the catchment region, estimated to be residing in a total of 151 265 households. This equates to 3.3 individuals per household, which is relatively low in density and accumulates to 670 Households per square kilometre. Household growth rate is calculated to be 3.0% per annum for periods between 2001 – 2011, Population growth is somewhat slower and has been calculated at by 1.8% per annum, translating to more income earners and reduced number of residents per household.
EDUCATION
The population has a relatively high education level (with at least two-thirds of the population having some secondary schooling or higher). A total of 7.0% of the population remain uneducated and have not attended any form of schooling.
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AGE PROFILE
Most people are between 15 and 19 years old, while a total of 69% of the population are of working age, contributing towards a large and youthful labour force, which represents a high potential for employment for upcoming developments.
EMPLOYMENT
The catchment area is characterised by low levels of unemployment (10.4%) compared to the rest of KwaZulu- Natal (20.8%) and South Africa (24.3%).
Labour Force Participation Rate: 57.1% Labour Absorption Rate 33.7%
HOUSEHOLD INCOME ANALYSIS
Most households in the study area earn a low to middle income ranging between R 9 601 to R 153 600 per annum or R 800 to R 12 800 per month, with 13.7% of households earning no income at all.
ECONOMIC OVERVIEW
The following figure gives an indication of the year-on-year growth in gross domestic product (GDP) as gross value added (GVA) at constant 2005 prices for the study area between 2006 and 2016. Growth pre-recession appears to be highest exceeding 4.0% per annum, dropping to 0.5% during the recession, recovering strongly to 3.6% in 2011, thereafter gradually declining to 1.6% in 2015. It is anticipated that through the analysis of prevalent trends that the GVA within the study area will grow by 2.6% within the current year (2016).
Figure 3: Year-on-year growth in GDP for study area, 2006 – 2016 (Projected)
Source: Quantec, 2016
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The following figure indicates the economic contribution of each sector of the economy in the study area in 2015.
Figure 4: Economic Contribution (GVA) per Sector for the study area, 2015
Source: Quantec, 2016
The Finance sector was the largest contributor to the economy within the study area, generating a total contribution of 26.9% to the economy. The Manufacturing sector contributed 18.3% while the Wholesale and Retail Trade sector and the Community and Social sector contributed 15.8% and 13.0% respectively to the total GDP. Of these aforementioned sectors, sub sector growth was highest in the Finance and Social services sectors.
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4 GENERAL MARKET TRENDS
COMPLETED COMMERCIAL BUILDINGS
Statistics South Africa publishes a statistical release annually indicating selected building statistics of the private sector as reported by local government institutions. The data set shows the total amount of new buildings that was completed within a calendar year, providing insight into the growth and development within a municipal area.
Historic Building Statistics (2004 – 2013) The following figure indicates the total square metres of completed non-residential buildings for the Northern eThekwini area (including uMhlanga, Tongaat and Verulam) between 2004 and 2013.
Figure 5: Historic Statistics – Completed Non-Residential Buildings (m2), Northern eThekwini, 2004 – 2013
150 000
100 000
50 000
SquareMetres 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Other Non-Residential 36 639 21 957 36 023 26 093 30 072 58 275 24 542 96 778 48 899 53 256 Office & Banking Space 18 061 40 017 17 424 3 213 39 068 38 363 99 022 32 797 18 802 60 377
Source: Statistics South Africa, 2016
From the figure above it is evident that the square metres of completed non-residential buildings peaked between 2010 and 2011, while the square metres of completed office and banking space buildings peaked in 2010. A total of 60 377m2 of office and banking space was completed in 2013 which was considerably more than the average of 36 714m2 per annum over the period.
The statistics for 2014 are currently not available, these have not been published by Statistics South Africa, however more current and relevant information was found for 2015, these have been graphed in the figure and section below.
Current Building Statistics (2015) The statistics for completed buildings below appear promising, however it must be noted that the figure has been further delineated to show additions and alterations in terms of value and square meterage.
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Figure 6: Non-Residential Buildings Planned and Completed, 2015
Source: Statistics South Africa, 2016
Overall only 65.1% of buildings planned were successfully completed, however for non- residential buildings the area completed was greater than that was planned (112.7%) indicating that a few of the buildings planned in 2014 were only completed in 2015. However, the total value of construction completed in excess of what was planned amounted to 29.0%, this was 16.3% more than the total area completed – indicating that construction costs for development had increased drastically in these past 2 years. Only 20.5% of all alterations/additions planned were actually completed.
It must be noted only 52.4 % of residential buildings such as houses, flats, apartments and other forms of dwellings planned, were readily completed in 2015, this proves to be a positive statistic in the form of a growing economic population, decreased amount of reliance upon breadwinners through an increased incoming and population earning potential coupled with a decrease in people residing per household.
INTEREST RATES
The prime lending rate was increased from 8.5% p.a. to 9% p.a. in January 2014. This was the first increase in the prime interest rate since early 2008. The interest rate was subsequently increased during July 2014 to 9.25% p.a. and has further been increased during March 2016 to 10.50% where it currently remains at. The following figure shows the change in the prime interest rate between 2006 and 2016.
Figure 7: Prime Interest Lending and Repo Rate, 2006 - 2016
Source: South African Reserve Bank, 2016
The figure above depicts a recovery in the current term, replicating rates which were experienced in 2010 (post-recession), with periods of economic stability and further recovery approaching.
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INFLATION
Slight deflation was experienced in 2015, followed by rebound inflation entering 2016, where inflation has remained more or less steady, peaking in the first quarter of 2016, deflating slightly in the second quarter as a result of economic relief through enhanced investor support within South Africa.
Figure 8: Headline CPI, 2006– 2016
Source: Quantec, 2016
The headline CPI annual inflation rate in August 2016 was 6.3%. This rate was 0.2% lower than the corresponding annual rate of 6.5% in July 2016. On average, prices decreased by 0.08% between July 2016 and August 2016.
Figure 9: South African Consumer Price Index (Inflation) – September 2015 – August 2016
Source: Statistics South Africa, 2016 7,5% 7,0% 7,0% 6,6% 6,5% 6,5% 6,5% In South Africa, Consumer prices have 6,5% 6,2% 6,3% increased by 1.8% over the past year up 6,0% to August 2016, which rests slightly lower 5,5% than the previous 5-month trend which 5,2% ranged from 6.5% -7.0%. All consumer 5,0% 4,8% sectors have experienced deflation and 4,5% 4,5% 4,6% some form of economic relief coupled 4,0% with the declining fuel price and strengthening of the rand since February 2016.
THE FNB/BER BUILDING CONFIDENCE INDEX
The FNB/BER Building Confidence Index reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.
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The FNB/BER building confidence index can vary between zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence). It reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware. After falling for six consecutive quarters, the RMB/BER BCI rose by 10 points to 42 in the third quarter. There are several reasons why the third quarter outcome must be interpreted with care. Despite the bounce back in confidence, at 42 points, the BCI remained in net negative terrain.
Figure 10: FNB BER Building Confidence Index, 2016 Q3
Source: Stellenbosch University – FNB/BER, 2016
Most respondents completed the questionnaire after the local elections, but before the onset of the most recent flare-up in political uncertainty due to, among other factors, renewed questions about the future of the Minister of Finance. While the rise in the BCI was widespread, the improvement in underlying business indicators was not. We would therefore not take the latest BCI results to mean the faster pace of growth in the second quarter was sustained in the third quarter.
Figure 11: FNB/BER Civil Confidence Index, 2016 Q3
Source: Stellenbosch University – FNB/BER, 2016 The FNB/BER Civil Confidence Index gained 11 points to register a level of 52 in 2016 Q3. Confidence was lifted by a notable improvement in overall profitability due to less keen tendering price competition and continued (albeit subdued) growth in construction activity.
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5 OFFICE, RESIDENTIAL, RETAIL AND INDUSTRIAL TREND ANALYSIS
South Africa is not unique in changing property trends or requirements over time, property trends change globally all the time in line with fluctuating economic conditions, generational needs and changing lifestyle demands. South Africa does however have some unique conditions, or reasons, that have played a large role in changing property trends. The following 4 types of land property development trends will now be scrutinised in more detail:
COMMERCIAL OFFICE SPACE TRENDS
National Trends
In 2015, office buildings transacted amounted to 71 which is almost double the 2014 amount of 37. Most of these transactions however were portfolio sales to Delta Property Fund and Investec Property Fund Limited. Excluding these portfolio sales, the amount of buildings sold would have resulted in a 19.0% decline from 2014. In 2015 total investment amounted to R18.5 billion in business linked real estate of which R7.6 billion was spent in secondary office investments which was a 70.0% growth in investments for the office sector. The Investec purchases alone accounted for 36.0% of this value. Total business related investments grew by 34.0% year on year from 2014, with offices driving much of the improvement in the year as it grew by 70.7%. In the long term, South Africa can expect to see increasing demand for office space.
The total GLA transacted in 2015 increased from 277 636m² in 2014 to 733 058m² in 2015. The average Rand per square metre value declined from R15 981/m² in 2014 to R10 331/m² in 2015. The decline in property values sold is also visible in the increase of office yields at 10.5% in 2015 from 9.4% in 2014. For some time now there has been an increasing preference for Grade-P accommodation among tenants, which has seen vacancies in Grade-A, B and C buildings on the rise. This trend has long term implications for offices that have seen declining demand and stagnant or declining rental rates, implying lower income1.
On aggregate, the South African national office vacancy rate continues to increase. In the fourth quarter of 2015, commercial office vacancies stood at 10.5%, almost unchanged from the quarter before which registered a vacancy rate of 10.6%2.
Provincial Trends
In 2011 KwaZulu-Natal’s Rands per m² reached a high over the five-year period between 2011-2015 of almost R15 000 and then fell in 2012 to almost R8 000. Since 2012 however, it has maintained steady growth reaching almost R13 000 by 2015. In fact, KwaZulu-Natal has maintained the steadiest growth in contrast to both the Western Cape and Gauteng and even South Africa as a whole which all displayed volatile growth in terms of Rands per m² for office space. This can be seen in the figure below which indicates office investment values by province from 2011-2015.
1 JLL (2016), Commercial Real Estate Transaction Review: South Africa. 2 SAPOA (2016), Office Vacancy Report 2015: Q4.
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Figure 12: Office Investment Value by Province
Source: Commercial Real Estate Transaction Review: South Africa, 2016
In summary, given the properties available in the market, investors are seeking buildings with potential for improvement, which may require additional capital spend for renovations and upgrades. This is likely to contribute to a further decline in property values and higher cap rates as buyers seek greater discounts to allow for additional spend on purchased buildings. Location is likely to become more important than quality for buyers in the prevailing market conditions.
The figure below reveals average office yields for the Western Cape, Gauteng, KwaZulu-Natal and the rest of South Africa for consecutive years from 2013-2015.
Figure 13: Average Office Yields
Source: Commercial Real Estate Transaction Review: South Africa, 2016
eThekwini Trends
In 2014, the Durban CBD commercial office market remained stable in terms of both supply and demand. There is a continuous move by business from south, west and central, to the northern region of eThekwini (Umhlanga Newtown Centre, Ridgeside Umhlanga, La Lucia Ridge and, to a lesser extent, Westville). Umhlanga and La Lucia are prime commercial office nodes for a range of differentiated use. Durban central areas like Morningside, Glenwood and the Berea have also seen the demand from tenants leaving the CBD3.
3 Broll (2016), The Broll Report 2013/2014. Available at www.broll.com
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The city anticipates the development of new commercial office market supply around Dube Trade Port and King Shaka International Airport, boosted primarily by international trade and investment focus. Flooding the market right now is the new development of small offices ranging from 150m2 to 300m2 competing in the traditional B- Grade office arena. There is also a continuously growing trend for companies to own their corporate buildings in Durban which spans somewhere between 1 000 m2 to 3 000m2 and up.
In the first quarter of 2016, eThekwini Municipality recorded an office vacancy rate of 10.9%, the third highest vacancy rate of the five major Metropolitan Municipalities in the country, as illustrated in the figure below, alongside.
Durban has also become one of the country’s leading nodes for green building. Because of the slow growth in the general economy, rentals in this market have stagnated in recent years, ranging at about R140 to R145/m2. Durban’s office nodes prime space achieved a gross rental of R65 to R100/m2, while Umhlanga and La Lucia achieve as high as R135/m2 with a net lease escalating from 8% to10% and operating costs at 8% to 12%. In the CBD, the Gross rentals are R45 to R50/m2 with operation costs and net lease escalation of 9%. The figure below represents office vacancy rates by municipal level for quarter 2015: Q4.
Figure 13: Office vacancy rates by Municipality
20% 16,0%
15% 12,3% 10,9% 9,8% 10% 7,2%
5%
0% City of Cape Town City of Johannesburg City of Tshwane eThekwini Nelson Mandela Bay
Source: SAPOA Office Vacancy Report, 2015: Q4, 2016
The star performer in Durban decentralized was Berea, where rentals were up by roughly 9%. Despite this growth being from a low base, another possible boon to market rentals in this node is vacancy rates that have in recent quarters been able to drop.
In contrast, vacancy rates in the premier office node of La Lucia have come under some upward pressure. This might, of course, explain why rentals in this node could only grow by 1%. In Westway, market rentals were about 3% below what they were a year ago4.
The two figures below show both nominal and real Grade-A office rentals in the decentralized Durban area.
4 Rode and Associates (2016: Q1), Rode’s Report
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Figure 14: Nominal Durban Grade-A Office Rentals Figure 15: Real Durban Grade-A Office Rentals
Source: Rode Report, 2016
The table below gives an overview of the office stock that is available within the main office nodes within the eThekwini Municipality. It is evident that the Durban CBD has the highest office stock available within the metro followed by Umhlanga/La Lucia in the north. Umhlanga/La Lucia had a total of 273 068m2 of office stock at the end of March 2016.
Table 2: SAPOA office stock (m2), Grades A+, A & B
Area Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Berea 17 653 17 653 17 653 17 653 87 466 Ballito 28 468 76 455 28 468 32 068 31 768 Hillcrest/Gillits 3 451 31 417 31 417 31 417 31 417 Durban CBD 341 007 340 990 340 990 340 990 340 990 Umhlanga/La Lucia 279 229 274 001 286 122 356 051 322 620 Westville 194 897 199 519 202 784 203 107 209 409 Source: Rode Report (2016: Q2)
The following table gives an overview of the office vacancy rates within the main office nodes within the eThekwini Municipality. From the table below it can be seen that the vacancy rates within Umhlanga/La Lucia increased from 3.1% to 8.6% between March 2015 and March 2016. This is considerably lower than the vacancy rates for the Durban CBD and Berea.
Table 3: SAPOA office vacancy factors (%), Grades A+, A & B
Area Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Berea 11.7 11.6 7.5 7.0 8.3 Ballito 9.6 5.5 9.8 9.1 7.2 Hillcrest/Gillits 12.6 2.5 2.8 4.6 8.3 Durban CBD 32.8 14.2 12.6 13.3 11.4 Umhlanga/La Lucia 3.1 3.0 7.6 9.5 8.6 Westville 6.1 5.2 6.6 7.1 7.9 Source: Rode Report (2016: Q2) The figure below indicates vacancy rates from 1999 to 2015 for the Westville, Berea and La Lucia/Umhlanga areas.
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Figure 14: Decentralized Durban Office Vacancies Grade-A+, A and B Combined
Source: Rode Report, 2016
The upward pressure on overall vacancy rates was primarily due to sharply rising vacancy rates in the Durban city’s largest and trendiest suburban office node of La Lucia/Umhlanga. In the fourth quarter of 2015, roughly 34.000 m² of this node’s prime (Grade-A+, -A & -B) office stock of about 360 000m² stood vacant, resulting in a vacancy rate of 9,5%. This is compared to the second quarter of 2015, when the vacancy rate stood at a very low 3%5.
Lease and Purchase Patterns for Commercial Office Space The table below shows the market rental rates for office buildings within eThekwini. The rental prices are the highest in Umhlanga/La Lucia for all the grades, highlighting the trend of offices moving north within eThekwini.
Table 4: Market rental rates for office space (Rand’s per rentable m2 per month, gross leases)
Area Grade A+ Mean Grade A Mean Grade B Mean Grade C Mean Durban CBD - 77.50 62.50 60.00 Durban Berea - 117.50 97.50 85.00 Essex Terrace 130.00 115.00 100.00 90.00 Westway 156.25 121.25 120.00 - Umhlanga/La Lucia Ridge 165.00 137.50 122.50 105.00 Westville 120.00 112.50 105.00 95.00 Pinetown 95.00 85.00 70.00 52.50 Hillcrest/Kloof (Upper Highway) 127.50 110.00 90.00 75.00 Source: Rode Report, 2016: Q2
Common practice has been for specific landlords to offer a rent-free period where no rent is payable by the tenant for an initial portion of the term of a lease in order to attract tenants. From the table below it can be seen that the Durban CBD area, Westway and Umhlanga/La Lucia have a mean rent-free period of 3.0 months, while Durban Berea and Hillcrest have a mean rent-free period of 2.0 months.
Table 5: Typical rent-free period in months (average periods on offer in 2016 Q2)
Area Mean Standard Deviation Durban CBD 3.0 0.0 Durban Berea 2.0 - Essex Terrace 3.5 0.7
5 Rode and Associates (2016: Q1), Rode Report
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Westway 3.0 1.4 Umhlanga/La Lucia Ridge 3.0 1.4 Westville 4.0 0.0 Pinetown 3.0 1.7 Hillcrest/Kloof (Upper Highway) 2.0 1.7 Source: Rode Report, 2016: Q2
It was tabulated as per above that Westville has the longest rent free period of 4.0 months with standard deviation of 0.0, what this signifies is that a longer rent free period is offered due to the lack of demand for office space in this area, the nil deviation arises from the poor take up in this supply over the past few quarters as well as the previous year.
RESIDENTIAL PROPERTY MARKET TRENDS
National Trends
Global and domestic economic conditions have resulted in a national Gross Domestic Product (GDP) growth forecast of approximately 0.8% for 2016 and the national currency depreciating by around 21% since the beginning of 20156. This is largely a result of global decline in commodity prices, national electricity shortages, drought induced food inflation, and a risk-averse approach to emerging markets. Benchmark lending rates have risen by 200 basis points in the last two years, 75 of these points being added to lending rates in the first quarter of 2016. The net effect of these interest rate hikes is a resultant increase in the prime lending rate which currently sits at 10.50%, thus increasing the cost of borrowing for home-buyers and property investors. The residential property market has been impacted by these domestic pressures and the environment of subdued growth. Residential building activity regarding the planning phase started 2016 on a relatively low note with only marginal year-on- year increases in the number of building plans approved for new housing units (3.2%).
The figure below displays yearly growth rates in national flat rentals in South Africa.
Figure 15: Yearly Growth in National Flat Rentals (2005-2015)
Source: Rode Report, 2016
Nationally, in the fourth quarter of 2015, market rentals for flats were still up by a yearly rate of 6%. Strong growth in flat rentals in Cape Town (+9,6%). Cape Town, followed by Pretoria where rentals were up by 6%, Johannesburg and Durban witnessed rentals grow by 5%7.
6 SARB (2016), SARB Monetary Policy Review 7 Rode and Associates (2016: Q1), Rode Report
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Provincial Trends
Consumers affordability is under strain and this is proved by the reduced bond approval rates which has decreased by 4.5% year-on-year from the second quarter of 2015. Lower approval rates reflect heightened mortgage finance affordability strain on home purchasers as the cost of credit also increases (16 basis points on the average interest rate in the second quarter of 2016).
The figure below reveals the House Price Index sourced from ABSA. The data extracted represents the purchase prices and percentage changes for all middle class houses (new and old) in KwaZulu-Natal.
Figure 16: ABSA Average KwaZulu-Natal House Price Index, 2010-2016
25% R1 400 000
20% R1 200 000 15% R1 000 000 10% R800 000 5% R600 000 0% Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014 Q1-2015 Q1-2016R400 000 Percentage Percentage Change -5%
-10% R200 000 Purchase (Rand Price Value)
-15% R0
Year on Year % change Purchase Price
Source: Quantec, 2016 In the figure above, houses that fall within the middle segment are classified by its size (80-400 square metres) and price (up to R3,6 million in 2012 base year prices). The middle segment comprises of three divisions as indicated below: Small: 80-140 square metres
Medium: 141-220 square metres.
Large: 221-400 square metres.
The figure above shows an upward trajectory of the purchase price from the fourth quarter of 2012 onwards with an average quarterly percentage increase of 6.77% from 2010-2016 in KwaZulu-Natal. The emergence of a financially stable black middle class had a tremendous impact on housing demand, encouraged by individual tax reliefs, in the context of a growing economy.8
The figure below reveals the House Price Index sourced from FNB. The data extracted represents the average purchase prices and percentage changes for all sized houses (new and old) in KwaZulu-Natal.
8 Global Property Guide (2016), Dramatic Fall in Rand Fails to Attract More Foreign Buyers to South Africa
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Note: The FNB Provincial House Price Indices are fixed-weighted averages of their sub-indices, which are split by room number and by sectional title versus freehold properties. The indices are lightly smoothed using a Hodrick- Prescott smoothing function.
Figure 17: FNB Average House Price Index
Source: Quantec, 2016 10,00% R1 200 000 9,00% 8,00% R1 000 000 In May 2016, the FNB House Price Index 7,00% R800 000 6,00% reported a 7.4% year-on-year rate of 5,00% R600 000 4,00% increase. This is marginally faster than R400 000
3,00% Value) the 7.0% updated rate of the prior 2,00%
Percentage Percentage Change R200 000 1,00% month. Just above zero percent real 0,00% R0 house price inflation would continue to
Average Average PurchasePrice (Rand suggest a market still very well balanced between supply and Year on Year % Change Purchase Price demand.
The figure below displays the number of units and the area (m²) of building plans passed in KwaZulu-Natal.
Figure 18: Building Plans Passed in KwaZulu-Natal, 2010-2014
10000 1000000
5459 4936 5000 4227 4246 4299 500000 3217 3099
No. units of 2221 2284 2202 2099 Area (s.q.m) 1660 2031 1681 1730
0 0 2010 2011 2012 2013 2014 Number of units Dwelling-houses Number of units Flats and townhouses Number of units Dwelling-houses (additions and alterations) Area (sq.m.) Dwelling-houses Area (sq.m.) Flats and townhouses Area (sq.m.) Dwelling-houses (additions and alterations) Source: Quantec, 2016
From the figure above it is evident that there is a great tendency for residents to extend their existing houses. In 2014, 3 217 dwelling houses plans were passed and a slightly lower amount of 3 099 flats and townhouses plans passed.
eThekwini Trends
Despite the subdued environment in the residential property market, house price growth in former black townships grew strongly in the first half of 2015, outperforming the major Metropolitan suburban areas. The higher property
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prices in townships resulted largely due to a significant slowing of the exodus of the black middle class into formerly white suburbs, with higher price growth in the townships reflecting greater residential supply constraints relative to demand9.
The FNB price Index notes that house price growth in formerly black townships saw a year-on-year increase of 11.9% in the first quarter of 2016, with an average estimated price of R356 390, making it, on average, the most affordable area of the residential property market.
The figure below displays house price growth from 2000-2015 for major metro former black townships.
Figure 9: Major Metro Former Black Township House Price Growth
60%
50%
40%
30%
20%
10%
Year Year year% on 0% Q1-2000 Q1-2003 Q1-2006 Q1-2009 Q1-2012 Q1-2015 -10%
-20% Major Metro Former Black Townships- year on year percentage change Major Metro Average House Price Index- year on year percentage change
Source: FNB Property Barometer, 2016
The relative outperformance of the township residential market appears to lag behind the former white suburban property market and is attributed to the following factors: 1. Increasing pressure being placed on household disposable income is driving buyers to consider more affordable housing. 2. Lower income earners, with more limited financial resources, take longer to make big financial decisions and require longer to financial prepare for a home purchase, than their higher income counterparts in the Metropolitan markets.
The table below displays average standard flat and upmarket flat rentals in the surrounding areas of Durban for the fourth quarter of 2015.
9 FNB Property Barometer (2016), Major Metro Former ‘Townships’ House Price Index Former “Township” Markets
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Table 6: Average Flat Rentals for Standard and Upmarket Units in Durban
Unit Average Rands per Month as at Quarter 2015:4 Durban Type Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Durban Average R3 155 R 3 737 R4 615 R5 542 Upper Highway: Kloof/ Hillcrest R3 400 R3 600 R4 200 R5 500 Pinetown area/ Queensburgh R2 675 R3 500 R4 225 R4 850 Westville area R2 600 R3 350 R4 450 R6 000
Central City (Including Lower Berea) R2 950 R3 250 R4 250 R5 500 Berea/ Morningside/ Glenwood R3 300 R3 950 R4 925 R5 750 South and North Beach R3 150 R3 850 R4 975 R5 925
Durban North/ La Lucia/ Umhlanga - - - - StandardUnits North (Dolphin) Coast/ Ballito R4 500 R5 000 R7 000 R9 000 Montclaire/ Yellowwood Park R3 025 R3 625 R4 425 R4 500 Bluff area/ Durban South R3 300 R3 850 R4 325 R5 000 Durban South/ Amanzimtoti/ Warner Beach R3 300 R3 650 R3 975 R4 500 Durban Average R3 521 R4 408 R5 350 R7 301 Upper Highway: Kloof/ Hillcrest R3 700 R4 150 R5 200 R6 500 Pinetown area/ Queensburgh R3 000 R3 725 R4 350 R5 500
Westville area R3 500 R4 500 R5 000 R7 000
Central City (Including Lower Berea) R2 900 R3 525 R4 775 R7 000 Berea/ Morningside/ Glenwood R3 150 R4 425 R5 400 R7 250 South and North Beach R3 100 R4 250 R5 475 R8 000
Durban North/ La Lucia/ Umhlanga R4 000 R5 750 R7 000 R15 000 UpmarketUnits North (Dolphin) Coast/ Ballito R8 000 R8 500 R10 100 R15 000 Montclaire/ Yellowwood Park R3 000 R3 750 R4 500 R5 000 Bluff area/ Durban South R3 000 R3 800 R4 500 R5 000 Durban South/ Amanzimtoti/ Warner Beach R3 250 R3 800 R4 500 R5 500 Source: Rode Report, 2016
From the table above it is evident that it is most affordable to rent a bachelor flat in the Westville area (R2 600); a one-bedroom flat in the Central City (R3 250); a two-bedroom flat in the Durban South/ Amanzimtoti/ Warner Beach area (R3 975) or a three-bedroom flat in either Montclair/Yellowood Park or the Durban South/ Amanzimtoti/ Warner Beach area (R4 500). The most exclusive flats of all sizes can be found in the North Coast/ Ballito at a monthly rental of R8 000 for a bachelor flat, R8 500 for a one-bedroom flat, R10 100 for a two-bedroom flat and R15 000 for a three-bedroom flat.
The figure below displays the number of units and the area (m²) of building plans passed in eThekwini.
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Figure 19: Building Plans Passed in eThekwini, 2010-2014
400 000 4 000 3 171 2 878 2 488 2 255 2 370 200 000 2 000 1 365 1 359
1 083 1 066 908 1 054 No. units of Area Area (s.q.m) 748 728 766 698
0 0 2010 2011 2012 2013 2014 No. of units Dwelling-houses No. of units Flats and townhouses No. of units Dwelling-houses (additions and alterations) Area (sq.m.) Dwelling-houses Area (sq.m.) Flats and townhouses Area (sq.m.) Dwelling-houses (additions and alterations)
Source: Quantec, 2016 From the figure above it is evident that there is a great tendency for residents of eThekwini to extend their existing houses. This mimics the same trend seen in KwaZulu-Natal. In 2014, 698 dwelling houses plans were passed and almost double this amount of 1 359 flats and townhouses plans were passed.
RETAIL PROPERTY MARKET TRENDS
National Trends
Despite the challenges of the consumer market, the performance of the retail sector has shown that there is strong demand for retail accommodation given its strong earning potential which is also the reason why asset holders have shown a preference to retain these properties. With the shortage in supply, investors showed a willingness to pay a premium for retail accommodation in 2015. Total investment value in retail accommodation increased by 48.0% year on year in 2015 to R5.7 billion.
The retail sector recorded a 47.8% rise in value, however, retail sales improvements were driven by portfolio sales, with Investec’s purchase of a list of Zenprop and Griffin Holdings properties driving much of the growth. In 2015
GLA transacted increased to 451 750m² from 437 899m² in 2014, a 3.0% year on year increase. This contributed to the value increasing to R12 693/m² in 2015 from R8 956/m² in 2014. The average yield in the sector improved to 9.0% in 2015 from 10.0% in 2014. Prime retail stock in prominent locations is currently very scarce in the market with many of the property funds choosing to hold onto this stock, preferring to refurbish their properties to remain competitive in the market where required10.
Provincial Trends
Gauteng and KwaZulu- Natal were both able to attain exponential increases in total investment value. Although GLA and investment value was mostly concentrated in Gauteng and KwaZulu-Natal, it is interesting to note that the total amount of properties traded was dominated by cities outside of the two provinces. Smaller regional or
10 JLL (2016), Commercial Real Estate Transaction Review: South Africa
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community shopping centres (less than 25 000m2) in non-metropolitan areas outside of Gauteng, Western Cape and KwaZulu-Natal accounted for 74.0% (29 buildings) of investment transactions in the retail sector, most of which are buildings that formed part of a portfolio of properties purchased by Dipula Income Fund from the Moolman Group11.
The Link Hills Shopping Centre which is situated in Waterfall, KwaZulu-Natal in a high growth residential area has a larger GLA than average properties sold in the year 2015. The shopping centre is one of the few retail properties on the market in a prime location.
The figure below displays retail investment values by province from 2011-2015.
Figure 20: Retail Investment Value by Province
Source: Commercial Real Estate Transaction Review: South Africa, 2016 In Gauteng alone, the GLA value
increased to R11 690/m² from R7 970/m², suggesting that investors have been willing to pay a premium for retail stock in the province, further highlighting the importance of location in retail property investment decisions. Interestingly, GLA and investment value was largely concentrated in Gauteng and KwaZulu-Natal in more densified areas considering the higher risk of holding retail accommodation in less densified areas with a lower household income profile.
Figure 21: Average Retail Yields
Source: Commercial Real Estate Transaction Review: South Africa, 2016
eThekwini Trends
In eThekwini, the retail market is experiencing growth, with a number of new major malls or shopping centres being opened, while others are under development. In Durban alone there are 130 shopping centres. The structural changes in the existing catchments areas caused by a constantly changing urban form that reflects a
11 JLL (2016), Commercial Real Estate Transaction Review: South Africa
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contemporary relationship between home, work, play and education have enhanced the level of development and investment in the retail sector. In 2014, the retail warehousing market preformed well as it achieved a 20.1% return followed by standalone retail shops at 17.7% and small shopping centres at 16.2%. eThekwini’s formal retail space measures roughly 1.7 million square metres. This translates to 473 square metres per 1 000 people12.
INDUSTRIAL PROPERTY MARKET TRENDS
National Trends
In 2015, the demand for industrial properties in South Africa remained steady at a 7% increase in the amount of buildings transacted. The total investment value of industrial property was R5.24 billion, a 22.0% increase from 2014 with the Investec, Equity Property Fund and Collins Group acquisitions accounting for over 78.0% of all investment transactions in 2015. Of the total business related real estate investment of R18.5 billion in 2015, the industrial sector accounted for R3.9 billion. The long term outlook of the country is likely to see demand for industrial accommodation on the rise.
GLA in the industrial sector declined to 424,883m² from 909,738m² in 2015. The overall value per square metre sold increased to R11 524/m² up from R8 524/m² in 2014. However, this was largely distorted by the strong improvement in the value per square metre in the industrial sector from R4 716/m² in 2014 to R9 686m² in 2015. This is a substantial deviation from the long term average of R4 300m² in this property asset class. The Investec-Zenprop deal, concluded at a 7.5% yield, accounted for 27.0% of industrial investment value in the year, with some buildings purchased at a value over R20 000/m².
Provincial Trends
Whilst there had been a much broader location spread of properties sold around South Africa in 2014, the importance of location played a much larger role in 2015 as investment transactions concentrated mainly in KwaZulu-Natal and Gauteng, with declining activity in the rest of South Africa. KwaZulu-Natal’s increased investment activity in 2015 is the highest recorded level of transactions in the past three years from only five industrial properties sold in 2014 to 11 in 2015. Long term potential in KwaZulu-Natal is mostly linked to port activity, with the province providing the main entry and exit of imported and exported goods.
Investec Property Fund has been the main driver of industrial investment transactions, with the acquisition of the Griffin Holdings property portfolio consisting of 22 properties, 18 of them being industrial properties in the Gauteng region, as well as the acquisition of the Zenprop portfolio consisting of 11 industrial properties mainly in KwaZulu- Natal. The majority of the properties acquired in KwaZulu-Natal are in the upmarket industrial node of Riverhorse Valley, boasting prime stock with blue chip tenants such as Discovery, RTT, ABB and Adcock Ingram.
12 Property 24 (2016), Eleven New Shopping Centres Proposed for Pretoria East
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The figure below shows industrial investment values by province from 2011-2015. Demand for industrial space has gravitated towards prime light industrial units and large warehouses for the use of logistics, distribution and warehousing.
Figure 22: Industrial Investment Value by Province
Source: Commercial Real Estate Transaction Review: South Africa, 2016
KwaZulu-Natal’s GLA value settles at R11 200/m², which is the highest value per square metre of all the provinces. Demand for industrial space has gravitated towards prime light industrial units and large warehouses (5,000m² or above) for the use of logistics, distribution and warehousing.13
The figure below reveals average industrial yields for the Western Cape, Gauteng, KwaZulu-Natal and the rest of South Africa for consecutive years from 2013-2015.
Figure 23: Average Industrial Yields
Source: Commercial Real Estate Transaction Review: South Africa, 2016
13JLL (2016), Commercial Real Estate Transaction Review: South Africa
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eThekwini Trends
The industrial areas of the northern eThekwini promise good future prospects as it links with the King Shaka International Airport which is planned to be developed into an Aerotropolis around the airport over the next 40 years. This will encourage industrial and commercial development along the N2 highway.
The Durban South industrial area is very well located close to the Durban harbour, but facilities are dated. The planned redevelopment of the old airport into a harbour is long term vision expected to provide industrial growth. The third major industrial area is the Pinetown and New Germany industrial areas to the west. The whole western sector of eThekwini is experiencing residential growth, potential new shopping centres, and new and upgraded industrial facilities. There is a growing link between the western areas and links with Cato Ridge and Pietermaritzburg. The demand for industrial space in the Hammarsdale/Cato Ridge area is increasing. This is a future growth corridor14.
The 2022 Commonwealth Games to be held in Durban is not expected to encourage any further commercial development, but it will certainly create opportunities to enable marketing of the city to potential investors. In Durban alone there is currently 6% industrial vacancies.
It Must be noted that construction of industrial area less than 250m2 is considered to be exorbitantly expensive and thus feasibility is justified for construction of Industrial areas larger than 250m2, however there is little reduction in construction costs between 250m2 and 2 500m2.
River Horse Valley has the highest leased area of 65.75m2 and Verulam has the least (37.50m2). It was noted that areas within closer proximity to the CBD, predominantly located within the North charge higher rental. This isn’t the case for Phoenix and Verulam which are located further North due to the proximity to the Port of Durban being unfavourable – thus increasing transport costs when importing and exporting.
To determine the demand for industrial property within an area we need to assess its desirability in terms of demand for that specific area. The vacancy or under utilisation rate provides a key representation of how well the area is perceived to locate demand, thus the higher the vacancy rate, the lower demand, as illustrated above, consequently the lower the market rentals offered within the area. However, this is not always the case and the lower the market rental is, the more affordable the property space becomes, translating to increased profitability as well as a higher assumed take up of industrial property for Small, Medium and Micro Enterprises.
The figure below depicts market rental vacancies in greater detail.
14 SAMCO (2016), The SAMCO Report 2016/2017
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Figure 24: Market Rental Vacancies
Source: Rode Report, 2016: Q1 It was noted that the lowest vacancies were for the Umbogintwini/Southgate Industrial Park, this was possibly noted to the influence which it has on the catchment region in the South of Durban, extending throughout the South Coast. Although the market rentals were higher for Southgate compared to Prospecton, it was noted that Southgate Industrial Park was notable more upper class and lighter industrialised than Prospecton, it is also closer in terms of proximity to larger retail such as Makro, Arbour Crossing and Galleria than Prospecton and thus is more favourable place to work in comparison.
Prospecton noted the highest vacancy rate (2.9%), this was possibly due to migration of businesses to the Southgate Industrial complex arising out of changing business needs. Riverhorse Valley comes in at second place with regards to vacancy rates, this is clearly due to market rentals being unable to make sound financial sense, hence it is a trade-off that businesses must make in terms of aesthetic appeal versus profitability and in most (99.5%) of the cases the latter always wins.
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6 MARKET ASSESSMENT
OFFICE ASSESSMENT
This section presents the assessment of the net demand for rentable office space for the study area.
Supply Ballito and La Lucia/ Umhlanga are the two main places supplying the primary market area with office property. The supply found within these two main places comprises of the majority of the supply of office property within the study area. The table below provides a summary of the supply of office property within the study area.
Table 7: Office supply and vacancy rates, Q2 2016
Previous Months % Office Type Total Rentable Area Area Available for Leasing Current Vacancy % 3 6 9 A+ 26 290 3 081 2.1% 2.1% 2.1% 2.1% A 292 256 25 217 3.0% 3.0% 3.0% 3.5% B 35 842 1 873 3.3% 3.3% 3.3% 2.8% Total 354 388 30 171 8.5% Source: Rode Report, 2016: Q2
From the table above, it is evident that the vacancy rate for the study area is 8.5% translating into 30 171m2 of area available for leasing out of a total of 354 388m2 total rentable area.
Map 6: Office Supply Density within the Proposed Catchment Area
Source: Urban-Econ, 2016
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Demand The demand for office space is a function of the output of the finance, insurance, real estate and business services sector; the community, social and personal services sector; and the general government sector, as well as the number of people who are employed within these sectors within the economy. Additionally, the relative strength of the national economy and forecasts with regards to Gross Domestic Product (GDP) growth over the foreseeable future should also be factored into demand forecasts for office property.
The following table gives an indication of the demand for additional rentable office space within the study area up to 2036.
Table 8: Demand for Rentable Office Space, 2016 – 2036 Concept / Year 2016 2021 2026 2031 2036 Total demand for office space 354 388 385 266 427 785 475 132 527 871 Additional Demand for space 0 30 878 73 397 120 744 173 483 Source: Urban-Econ Modelling, 2016
From the table above it is evident that the additional demand for office space will increase to 173 483 m2 by 2036. However, current vacancies will have to be absorbed before any new development space will be taken up within the market. The figure in the following chapter indicates this graphically.
Net Effective Demand The demand for additional office space is anticipated to surpass the current vacancies in 2034. The green shaded areas represent the additional demand for office space once the current vacancies have been eradicated and proposed new developments have been taken up.
Figure 25: Demand and Vacancies of Office Space, 2016 – 2036
60 000 40 000 20 000
0 )
2 -20 000 2016 2021 2026 2031 2036 -40 000
GLA GLA (m -60 000 -80 000 -100 000 -120 000 -140 000
Additional Demand Vacancies (All grades)
Source: Urban-Econ, 2016
The following table indicates the effective demand for rentable office space.
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Table 9: Effective Demand for Rentable Office Space, 2016 - 2036
Concept / Year 2016 2021 2026 2031 2036 Total demand for office space 354 388 385 266 427 785 475 132 527 871 Additional Demand for space -123 857 -92 979 -50 460 -3 113 49 626 Source: Urban-Econ Modelling, 2016
The demand for additional office space will surpass the current vacancies in 2034. The effective demand for rentable office space will be around 49 626 m2 by 2036. This indicates good demand for additional rentable office space.
RESIDENTIAL ASSESSMENT
For 2016, the Banking Association of SA calculated the upper-income limit of the ‘affordable housing’ market as R20 800 per month.15 This segment is served by house prices in the range of R300 000– R600 000. In the past year, affordable housing prices have risen by almost 10%, effortlessly outdoing the rest of the property market, this was notably due to surplus demand coupled with rising construction costs as well as inflation. The supply shortfall is also likely to persist as there is pent-up demand in the market and population growth demands corresponding increases in households. The housing backlog now stands at 2.1 million units within South Africa as a whole, as calculated by the Department of Human Settlements.16
Supply Phoenix and Mawothi are the two main places currently supplying the primary market area with residential property, however due to spatial restrictions, there is minimal potential for residential growth. The supply found within these two main places is constitutes almost 50% of the residential supply in this entire catchment region. The table below provides a summary of the supply of residential property within the study area and its anticipated 20-year growth potential.
Table 10: Current and Future Estimated Residential Supply, 2016 - 2036
Concept / Year 2016 2021 2026 2031 2036 Forecasted Supply 154 273 195 777 248 447 315 286 400 107 Source: Rode Report, 2016: Q2
From the table above, the supply growth rate was calculated at 5.8% for the study area, translating to 248 447 properties available for lease or sale by 2026 and a total of 400 107 properties by 2036.
15 BASA (2016) 16 Mary R Tomlinson, IRR (2015)
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Map 7: Residential Supply Density within the Proposed Catchment Area
Source: Urban-Econ, 2016
Demand In 2001, approximately 99 000 households were surveyed within the catchment region, this Census data was then captured and ten years later, in 2011, this catchment area reported an approximate total of 133 000 households, this translated to a Compound Annual Growth Rate of 3.0% per annum. Comparatively this catchment region is growing twice as fast as eThekwini (1.5%) and almost thrice as fast as KwaZulu-Natal (1.3%) in terms of annual household growth. It is currently estimated that 154 273 households are occupied by 497 558 people, with the population growing at 1.8% per annum, with a noted trend towards a reduction in people per household.
Table 11: Demand for the Number of Residential Units, 2016-2036
Concept / Year 2016 2021 2026 2031 2036 Additional Demand 0 24 587 53 092 86 141 124 456 Vacancies (All grades) 4 829 5 599 6 491 7 525 8 725 Effective Demand -4 829 18 988 46 602 78 615 115 732 Source: Urban-Econ Modelling, 2016
Net Effective Demand The demand for additional residential property is anticipated to surpass additional supply by 2028. The green shaded areas represent the additional demand for residential property once the current vacancies and excess supply available have been depleted.
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Figure 26: Net Effective Demand for the Number of Residential Units, 2016-2036
120 000
100 000
80 000
60 000
40 000
No.of Properties 20 000
0 2016 2021 2026 2031 2036 -20 000
Total Effective Demand Anticipated Additional Supply
Source: Urban-Econ, 2016
The following table indicates the effective demand for residential property.
Table 12: Effective Demand for Residential Units, 2016-2036
Concept / Year 2016 2021 2026 2031 2036 Total Effective Demand -4 829 18 988 46 602 78 615 115 732 Anticipated Additional Supply 0 41 504 52 670 66 839 84 821 New Development – Cornubia (Major) 482 0 3 079 0 22 134 Additional Demand for Residential Property -5 311 -22 516 -9 147 11 776 8 777 Source: Urban-Econ Modelling, 2016
The demand for additional residential property will surpass the additional supply by 2028. The effective demand for residential property units is projected to reach 8 777 by 2036. This indicates good demand for residential space, and based on the average property size of 68 m2, a total residential development GLA figure of approximately 597 000 m2 is required in 20 years’ time.
RETAIL ASSESSMENT
The retail component of the proposed development will mainly serve the office precinct of the development and to a lesser extent the residential component (due to shopping preferences). It is highly unlikely that residents from the surrounding area will come here to make purchases. As a result of this the retail demand has been calculated based on the expected retail spend of the employees working and residents living on site.
Supply Eleven existing shopping centres have been identified within the local market area. The details of each centre has been tabulated below.
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Table 13: Supply of Existing Retail Centres, 2016
Retail Centre GLA Classification Proximity Tenants Anchor tenants Parking (m2) Gateway 166 636 Super Regional 11.0km 413 Superspar, Checkers Hyper, 4 500 covered Centre Woolworths, Edgars and 3 300 open bays La Lucia Mall 36 550 17.9km 136 Edgars, Foschini, Mr. Price, 780 covered and Pick n Pay and Woolworths 1 400 open bays
Ballito Lifestyle 27 620 Minor Regional 26.0km 84 Superspar, Woolworths, 500 covered and Centre Centre Truworths, Mica, Mr. Price. 700 open bays The Crescent 26 846 15.7km 60 Pick n Pay, Builders Express, 340 covered and Food Lovers Market, Clicks. 849 open bays Ballito Bay Mall 30 000 Community 26.4km 77 Checkers, Woolworths, 1 285 covered Centre Game and Pep and 1 909 open bays Mt. Edgecombe 10 000 Neighbourhood 8.3km 45 Shoprite Checkers, 50 open bays Plaza Centre Ackermans and Pep Phoenix Plaza 24 363 Minor Regional 15.7km 120 Shoprite, Hub, Jet, Pep, Mr 362 covered, 638 Centre Price, Clicks, Truworths. open bays Ballito Junction 80 000 26.1km 26 Pick n Pay and Dis-Chem 263 covered and (expansion) 1814 open bays Umhlanga 8 500 14.2km 20 Food Zone, Hooters, Boston 30 covered and Plaza Neighbourhood College and Lord Prawn 70 open bays Lighthouse Mall 8 263 Centre 14.1km 26 Pick n Pay, Clicks, Ba-Ba 27 open bays
Granada 7 161 14.2km 22 Woolworths, Little Havana, 240 covered Square Europa parking’s Bridge City 39 159 Small Regional 18.1km 135 Woolworths, Edgars, 2500 parking bays Centre Shoprite Whitehouse 11 300 Neighbourhood 20.9km +- 40 KFC, Maxi Market +- 100 parking Centre bays ` Source: South African Council of Shopping Centres, 2016
Map 8: Retail Supply Density within the Proposed Catchment Area
Source: Urban-Econ, 2016
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Demand The demand for retail gross leasable area (GLA) is a function of the expected number of employees that will be working and living on the site as well as the expected expenditure per person. The total expenditure per annum is divided by the trading density in order to express the demand for retail space in GLA.
The following table shows the total expenditure, trading density and GLA demanded.
Table 14: Total expenditure, trading density and demand for retail GLA, 2016
Total Expenditure Trading Density GLA (m2) R 7 318 401 134 R 36 056.40 202 971 Source: Urban-Econ Modelling (2016) The GLA demanded totals 202 971 m2 in 2016, prior to accounting for additional retail spatial developments.
Net Effective Demand The existing retail offerings in the surrounding area will not compete with the proposed retail component. The following table indicates the net effective demand between 2016 and 2036.
Table 15: Net effective retail demand, 2016 – 2036
Concept / Year 2016 2021 2026 2031 2036 GLA Demand 202 971 235 319 272 823 316 303 366 713 GLA Supply 325 458 325 458 325 458 325 458 325 458 Net Demand -122 487 -90 139 -52 635 -9 155 41 255 Source: Urban-Econ Modelling (2016)
The total net effective demand is currently negative and it is anticipated to remain negative until 2034, whereby demand is expected to reach 41 255 m2 by 2036. Future demand is evident and is linked to the office precinct retail needs, although not immediately. Note: Bridge City and Whitehouse have been omitted from the demand model as the LSM catchment differs from the targeted LSM of the proposed development.
INDUSTRIAL ASSESSMENT
It is envisaged that the industrial component of the proposed development could serve the export market of Dube Tradeport due to its close proximity to the National Road (N2 Highway) as well as the fact that it rests adjacent to the King Shaka International Airport (KSIA) which promotes air transport cargo linkages. The Dube Trade zone is also in negotiations with the Department of Trade and Industry (DTI) to provide large local companies as well as Multi-National Companies (MNCs) with attractive incentives for locating within the proposed trade zones.
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Supply The supply of industrial parks surrounding the proposed development is vast, from Large Industrial Parks in the South such as Prospecton, to those located centrally such as Riverhorse Valley and Phoenix Industrial Park in the North. Although there is a large degree of industrial parks located around these crucial hub points, Dube Tradeport relies on a different marketing approach and service offering; their fiscal incentives (supported by the DTI), advanced cargo logistics movement (proximity to air transport) and prime location (2km from the N2).
Table 16: Supply of Industrial Parks in eThekwini
Industrial Park Name Location GLA (m2) Vacancy Industrial Park Name Location GLA (m2) Vacancy Rate (%) Rate (%) Springfield Park Central 900 000 2.0 Brickfield Rd Central 140 000 5.0
Mayville Central 50 000 3.3 Verulam North 250 000 4.0
Phoenix North 660 000 1.5 New Westmead/ Central – 240 000 1.9 Mahogany West
Briardene Industrial Central - 390 000 1.5 Westmead Central – 1 700 000 1.9 West Park North Umgeni Rd/ Stamford Central 410 000 3.3 Mariann Park/ Central – 150 000 2.8 Southmead West Hill Umbilo/ Sydney Rd/ Central 960 000 3.3 Maxmead Central – 530 000 2.4 West Gale St Jacobs Central 1 180 000 2.0 Ringroad Industrial North 189 000 4.0 Park – South Mobeni Central 780 000 2.0 Avoca/ Red Hill/ North 180 000 3.0 Northgate – South Prospecton South 190 000 2.9 River Horse Valley North 530 000 2.5 Business
Pinetown Central West 470 000 2.4 Mount Edgecombe North 200 000 2.0
New Germany West 1 340 000 2.6 Umbogintwini South 510 000 1.0
Isipingo South 220 000 3.5 Southgate Industrial South 410 000 1.0 Park
Rossburgh/ South Central 510 000 4.0 Hammersdale Far West 10 000 4.2 Coast Rd – South Edwin Swales Drive Central 110 000 2.7 Cato Ridge Far West 500 000 3.8 – South Glen Anil North 180 000 2.7 Total / Average Durban 3.0
Source: Industrial Land Strategy and Rode Report, 2016
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Map 9: Industrial Supply Density within the Proposed Catchment Area
Source: Urban-Econ, 2016
Demand The demand for Industrial Gross Leasable Area (GLA) is determined by the future growth potential of the Gross Value Added (GVA) for the Manufacturing and Transport and Storage sectors. This assumes that the growing Manufacturing and Logistics needs will require more space for expansion, this required space demanded will be informed by the growth in GVA for each of the relevant sectors.
The commercial property sector in KwaZulu-Natal has been stimulated by demand generated through the province’s two Industrial Development Zones and its significant investment in infrastructure. Effective collaboration between private and public sectors has also yielded positive results, further encouraging investment within the province. With two of the hemisphere’s largest and busiest ports (Durban and Richards Bay) within its borders, both of which are part of government-proclaimed Industrial Development Zones (IDZs), KwaZulu-Natal’s commercial property market has seen significant development in recent years, with demand particularly high in the industrial sector. There is a scramble to set up large warehousing and manufacturing facilities of greater than 10 000 m2 closer to the port, although a shortage of serviced industrial land in Durban makes the development of land unfeasible.
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Further away from the port, Cato Ridge and Hammarsdale are home to major distribution centres, with the prospect of a dry port in Cato Ridge adding impetus; it is hoped that it will relieve the high traffic congestion on the roads around Durban Harbour. Such movement away from Central and the Port translates to broader thinking in terms of developable land which allows industry to access decentralised industrial hubs at a fraction of the cost for similar grades of property.17
The economic growth rate for 2015 has been adjusted downward by the South African Reserve Bank (SARB) from 2.5% to 2.0%. This may reduce the demand for industrial space, however, the services sector has been outperforming the manufacturing sector for many years and this may still drive up the demand for office and retail premises.18
There is some 1 600 ha’s of land identified for industrial development in the Spatial Development Plans but this needs to be zoned and serviced to address the demand. Demand appears to be in the region of 30 – 45 ha’s per annum although latent demand may be in excess of this if land was readily available.19
The following table shows the total GVA and GLA demanded for industrial property within eThekwini.
Table 17: Industrial Land Demanded in Excess – eThekwini, 2016
eThekwini eThekwini North Industrial Land Area Demanded in Excess of Supply (m2) 350 000 30 29 294 GVA R75 909 966 910 R6 353 352 787 Factor R 216885.62 / m2
Source: Urban-Econ Modelling, 2016
Net Effective Demand The existing industrial offerings in the surrounding area, will not compete with the proposed industrial component. The following table indicates the net effective demand between 2016 and 2036.
Table 18: Net effective retail demand, 2016 – 2036
Concept / Year 2016 2021 2026 2031 2036 GLA Demand 2 688 443 2 773 875 2 871 569 2 983 286 3 111 041 GLA Supply 2 657 365 2 657 365 2 657 365 2 657 365 2 657 365 Excess GLA 31 078 116 510 214 204 325 921 453 676 Available Source: Urban-Econ Modelling, 2016
The total net effective demand of 31 078 m2 GLA is expected to increase to 453 676 m2 GLA by 2036, the table above shows demand for industrial floor area between 3.1 ha to 45.4 ha.
17 Mail and Guardian, 21 May 2015 18 Edge 13th Edition, May 2015 19 eThekwini Industrial Land Study and Development Strategy, 2014
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SUMMARY
A summary of the office, hotel and retail assessments are listed below.
There is good demand for rentable office space, considering current office stock available, it is recommended that 50 000m2 of office space be constructed by 2036. It is anticipated that there will be a surplus of office space until 2034, therefore a phased development approach is best suited to the proposed development.
The Residential demand model appears to be relatively poor, due to the abundance of supply stock in the surrounding market catchment area which encompasses growing and established nodes such as Verulam, Ballito and Mount Edgecombe. The Cornubia development is anticipated reduce demand even further, absorbing the majority of key residents, leading to a development size of 12 000m2 by 2031. The construction based on 2031 itself may pose a risk, thus it is advised that initial construction of 8 800m2 be developed and expanded to 12 000m2 once the 2036 timeframe has elapsed, due to the possible impact of Residential development which the Cornubia development is likely to have.
Retail demand is evident and warrants the development of a 51 000m2 sized centre, linked to the office precinct retail needs as well as the residential and communal requirements. Initially the development should be constructed as a Community Centre between 10 000 – 30 000m2, as this is the norm for shopping centres within the catchment area, thereafter, upon reaching and confirming demand by 2036, be developed into a Neighbourhood Centre, of which the size is to exceed 50 000m2.
There is a very modest demand for industrial space within the proposed site, initially (2016) it seems that only 3.1 hectares of floor area is required, however over the 20-year period (2036), this figure increases to 45.4 hectares, which is modest considering the magnitude of the overall multi use development;
The total area required is approximately 55.3 hectares for all four mixed use components.
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7 SOCIO-ECONOMIC IMPACT ASSESSMENT
ECONOMIC IMPACT
The economic impact assessment measures the anticipated economic impact of the capital expenditure (construction) of the proposed development. It includes economic output of new business sales creation, gross value added to the gross geographic product (GGP), additional total income created to households, as well number of jobs created.
The net economic impact of an exogenous change in the economy will be translated according to various direct and indirect economic effects, as are defined below: Direct economic impacts: are the changes in local business activity occurring as a direct consequence of public or private business decision, or public programmes and policies. Furthermore, increased user benefits lead to monetary benefits for some users and non-users (individuals and businesses) within the geographical area: o For affected businesses, there may be economic efficiency benefits in terms of product cost, product quality or product availability, stemming from changes in labour market access, cost of obtaining production inputs and/or cost of supplying finished products to customers. o For affected residents, benefits may include reduced costs for obtaining goods and services, increased income from selling goods and services to outsiders, and/or increased variety of work and recreational opportunities associated with greater location accessibility. Indirect and induced impacts: Ultimately, the direct benefits to business and the residents of communities and regions may also have broader impacts. The direct impacts can result in multiplier effects in an economy. Indirect impacts are as follows; o Indirect business impacts – business growth for suppliers to the directly- affected businesses o Induced business impacts – business growth as the additional workers (created by direct and indirect economic impacts/effects) spend their income on food, clothing, shelter and other local goods and services. This business growth will also have implications for potential municipal income due to raised taxes and service levies o Dynamic economic effects – shifts in broader population and business location patterns, land use and resulting land value patterns, which may also affect government costs and revenues. These changes will ultimately affect income, wealth and/or well-being.
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An example of indirect and induced impacts is where an intervention results in increased jobs, which could lead to increased household incomes, which could result in increased spending, which could result in increased business sales (turnover), which could result in expansion of businesses and thus the need to employ more people.
Anticipated Total Capital Expenditure The anticipated capital expenditure for the proposed development is divided between the capital cost of the bulk infrastructure and the capital cost of the superstructure.
The capital expenditure for the bulk infrastructure was provided by the client and is expected to be R 95 million.
The capital cost of the superstructure is determined from the total construction costs per square metre, and the size of each of the aspects of the proposed development. The following table summarises the estimated capital cost of the superstructure.
Table 19: Estimated capital cost of superstructure (calculated on current prices)
Land Use Total Area (m2) Cost (R/m2) * Superstructure CAPEX Standard Offices (High Rise) 49 626 10 991 R 545 439 366 Multi-Unit Residential (High Rise) 8 777 8 801 R 77 246 377 Small Regional Shopping Centre 41 255 9 397 R 387 673 235 Light Industrial 453 676 4 699 R 2 131 823 524 Total 553 334 R 3 142 182 502 Source*: Calculations based on AECOM’s Africa Property and Construction Handbook (2016)
Impact The economic impact is determined by a multiplier analysis which measures the direct and indirect impacts on the regional economy derived from the capital expenditure of the proposed development. There are numerous economically variable categories that can be measured to determine the extent to which an economy has been impacted due to an exogenous change. Four different impacts are identified, and are described as follows:
New Business Sales Multiplier effect This multiplier measures the total new business sales generated as a result of the capital expenditure which creates economic activity through the supply chain. Direct impact relates to new business sales directly in the construction supply-chain, and indirect business sales are business sales generated through indirect channels, such as from secondary expenditure in the economy derived from the income created by the capital expenditure.
Gross Value-Added Multiplier Effect This measures the total value-added to the Gross Geographical Product (GGP) of the region’s economy. Direct multiplier effects measure the value-added in the direct supply base, and indirect multipliers measure the induced value-addition indirectly to other subsequent sectors.
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The Household Income Multiplier Effect The household income multiplier effect tabulates the total household income increase as a result of the capital expenditure. Direct household income is the total household income generated as a result of expenditure on the supplying businesses, and indirect income reflects secondary income generated by secondary expenditure of households having benefited from the proposed development’s capital expenditure.
The Employment Multiplier Effect This multiplier measures the total employment created during the capital expenditure phase. Direct employment occurs within the supply-chain, and indirect employment incurs in all indirect processes of the supply-chain. Overall some of these various measures of economic impact are overlapping and for this reason cannot necessarily be added together and should be understood to represent different dimensions of measuring economic impact. The results of the analysis are tabulated below.
Table 20: Economic impact of capital expenditure
Economic impact multiplier Direct Indirect Total Additional New Business Sales R 3 887 057 424 R 4 873 909 781 R 8 760 967 204 Additional Gross Value Added R 1 286 298 563 R 1 826 360 190 R 3 112 658 753 Additional Income Created R 681 293 586 R 855 204 997 R 1 536 498 582 Additional Employment Created 8 443 6 558 15 001 Source: Urban-Econ Modelling, 2016
The following can be highlighted: A total of R8.8 billion New Business Sales will be created directly and indirectly in the regional economy; This will translate to Total Value Add of R3.1 billion to Gross Geographic Product; The households benefitting from economic activity created by the capital expenditure will see their Income increase by approximately R1.5 billion; The capital expenditure phase will create a total of 15 001 jobs.
SOCIAL IMPACT
A socio-economic impact is defined as: “The consequences to human populations of any public or private actions that alter the ways in which people live, work, play, relate to one another, organise to meet their needs and generally cope as members of society. The term includes cultural impacts involving changes to the norms, values and beliefs that guide and rationalize their cognition of themselves and their society.”
Impact Rating Model The table below gives an indication of the potential socio-economic impacts of the development, using a Logical Flow Impact Model, which assesses the direction the impact will take, the extent, intensity and duration of such impact to generate a consequence score. This score is then applied to a rating model coupled with the probability of the event occurring to generate the level of risk and significance which each of the impacts is likely to create. The impact rating tables below detail both positive and negative socio-economic impacts.
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Table 21: Potential Positive Socio-Economic Impacts Consequence Consequence Socio-Economic Impacts Extent Intensity Duration Probability Significance Score Rating Highly Increased employment Region 3 High 3 Long 3 9 Very High Very High Probable Employment and Economic Increased income earners Region 3 Medium 2 Long 3 8 Very High Probable High Growth Positive economic growth Region 3 Medium 2 Long 3 8 Very High Probable High Increased household’s growth Local 2 Medium 2 Long 3 7 High Probable Medium Municipality Increase in Rates Revenue Region 3 Low 1 Long 3 7 High Probable Medium Tourism Accommodation Local 2 Low 1 Short 1 4 Very Low Probable Very Low Local Densification Local 2 Medium 2 Medium 2 6 Medium Definite Medium Environment Aesthetics Area 1 High 3 Long 3 7 High Definite High Expanded retail offering Local 2 Medium 2 Medium 2 6 Medium Definite Medium Quality of Life Reduced Distance to Highly Local 2 High 3 Long 3 8 Very High Very High Workplace Probable Source: Urban-Econ, 2016
Table 22: Potential Negative Socio-Economic Impacts Consequence Consequence Socio-Economic Impacts Extent Intensity Duration Probability Significance Score Rating Crime Increased likelihood of crime Area 1 Medium 2 Long 3 6 Medium Probable Low Deteriorating Road Highly Local 2 High 3 Short 1 6 Medium Medium Infrastructure Probable Stress on electricity supply Local 2 High 3 Short 1 6 Medium Definite Medium Municipality Highly Stress on storm water Local 2 High 3 Short 1 6 Medium Medium Probable Stress on waste water Local 2 High 3 Short 1 6 Medium Definite Medium Stress on water supply Local 2 High 3 Short 1 6 Medium Definite Medium Potential Tourism loss for the Tourism Local 2 Low 1 Long 3 6 Medium Probable Low area (Barn Swallows) Local Congestion and Noise Local 2 Medium 2 Medium 3 7 High Probable Medium Environment Accessible / Developable Land Local 2 High 3 Long 3 8 Very High Definite Very High Source: Urban-Econ, 2016
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Impact Mitigation Measures Mitigation measures are given for impacts identified as negative in the above table. If these mitigation measures are used, the significance rating should decrease and reduce the overall negative externalities of the development. The consequence ratings or probabilities in brackets are the new consequence ratings or probabilities once a mitigation effort has been put in place.
Table 23: Impact mitigation
Significance Significance Consequence Socio-Economic Impacts Probability before after Rating mitigation mitigation Deteriorating Road Highly Medium Medium Medium Infrastructure Probable Stress on electricity supply Medium Definite Medium Medium Highly Municipality Stress on storm water Medium Medium Medium Probable Stress on waste water Medium Definite Medium Medium Stress on water supply Medium Definite Medium Medium Tourism Barn Swallows Medium Probable Low Low Local Congestion and Noise High Probable Medium Medium Environment Developable Land High Probable Medium Very High
Municipality: Deteriorating Road Infrastructure The proposed development is likely to cause road congestion and noise from resultant operations. Internal roads are well constructed, street lighting, electricity, water and solid waste removal is provided as part of Municipal infrastructure and maintenance on behalf of eThekwini Municipality. The area however is partially serviced by septic tanks and off site waterborne sanitation is currently not planned for.
The area only has a single lane gravel access route (Sugar Cane Road), although the majority of internal roads are tarred and in good condition, they are not designed to handle an increase in traffic volume. The connecting Road (D757) provides access to Verulam and uMdloti via the M27, which also features good connectivity to the N2.
Municipality: Stress on electricity supply Although this is a unit within municipal operations, it has been given its own impact rating due to the current strain on electricity supply. The proposed development is anticipated to put further strain on the current levels of available electricity supply. This is under the assumption that no further resources become operational during the development period. “Green” solutions, such as solar heating, could be used to reduce the use of electricity within the development which would lower the impact.
The current bulk supply originates from the large substation in uMdloti via an 11kV feed which is transmitted along the M27 access road. This leads to a mini substation distribution setup within Mount Moreland. eThekwini electricity has confirmed a new 132kV overhead power line and substation, constructed north of ACSA opposite the R102. This coupled with the spare capacity present at uMdloti substation has been deemed sufficient for current precinct plans.
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Municipality: Stress on storm water Apart from the minor drainage through road infrastructure, there is currently no storm water infrastructure in place. The current setup functions without any issues as there aren’t any large permeable areas, and the large grassy areas and road verges sufficiently deal with surface flows. Possible levels of intervention include harvesting rain/storm water for domestic use.
Municipality: Stress on waste water There is currently no waterborne sewerage network, all plots of land have individual private septic tanks or soakaway systems. For the current development and population within the area, the system seems to be working adequately, however regular maintenance costs are an indication that these systems could be nearing the end of their service lives and may require replacement, or more preferably upgrading to a modern system. A new bulk pipeline is to be provided by DTP, this will link up to the uMdloti WWTW, operational as of 2015. Development of a new sewer network is required. Currently operating at 33% of maximum available capacity.
Municipality: Stress on water supply The supply of water is done at a multi-district level. Umgeni Water is considering a number of projects that would increase the amount of potable water available to the region. These include projects such as the uMkhomazi Water Project or a possible desalination plant situated in the vicinity of the uMdloti River Estuary. The importance of developing any specific option is linked to its area of supply and the rate at which the water demands in that specific area is predicted to increase. The area is serviced by an outdated water recirculation network which is subjected to constant maintenance. The bulk supply to the area is obtained through a 50mm piped connection from the La Mercy reservoir (Capacity <1.0 Million Litres).
Tourism: Barn Swallows (Bird Watching) The noise pollution caused during the construction and to a lesser extent the operation will pose conflict with the Barn Swallows which are a serious Tourist attraction (Bird Watchers) within the Mount Moreland area. According to ornithologists, swallows are migratory birds which travel long distances and once a resting ground has been established, settle there for life, such a location has been selected and will prove impossible to relocate.
Local Environment: Congestion and Noise In terms of congestion and noise there will be a short-term impact during the construction as well as a long-term impact as a result of more people visiting the new development. Light industrial manufacturing will also contribute to noise pollution and to a lesser extent the noise created by those employed within the office park. During construction, trucks and workers could add to the congestion which could result in accidents and delays. This can be mitigated against by hiring workers to direct traffic flow during congestion and to warn motorists of the upcoming construction zone. Workers could work during convenient times so that the noise blends in with other daily noises (normal working hours).
Local Environment: Accessible / Developable Land The amount of developable land appears to be a serious risk for the proposed development, a clear concern is the capacity to cater for increased development in the future. Due to the mountainous topography of the area, construction and development will prove to be costly, including land preparation, an additional step which isn’t required for flat or readily serviceable land. Another key factor to consider is the environmental risks
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Table 24: Potential Socio-Economic Impacts
Risks Risk Mitigation Mitigation Intervention Envisaged Outcomes Identified Significance Duration Required Road Medium Medium Consultation with eThekwini Co-ordinated IRPTN Transport Infrastructure Term Transport Authority to co- Network to improve people ordinate road upgrades with movement around the City, the IRPTN plans for the area. reducing costs and providing Follow up with eThekwini regularly serviced volume Municipality as to the bearing road infrastructure. upgrading and resurfacing of the P99 link road to Verulam.20 Stress on Medium Short Term Apply for increased Power Reduced reliance and costs Electricity capacity to the proposed site, generated through the use of Supply warranting the construction of Municipal power. Also this substations where applicable. reduces power outages which Install Solar Cells on roofing to translate to undisturbed ensure power production for operation, within industrial, the developments utilisation. retail, residential and office Invest in LED and lower power components. consuming devices. Stress on Medium Short Term Storm Water Provisions Reduction in the amount of Storm Water include; limiting the amount of storm water and pollution hard impermeable surfacing, damage through taking maximising on-site filtration precautionary measures and in and providing adequate doing so harvest water to pollution control measures. reduce the water usage footprint. Stress on Medium Short Term Development of a water Adequate monitoring and Waste Water reticulation sewer network. future capacity upgrades. Stress on Medium Short Term Apply for increased water Increased treated water flow Water Supply supply within the area by through the proposed obtaining a Water Use License development and surrounding Agreement (WULA) and areas through linking with KSIA follow up with eThekwini water supply. Planning as to linkages to the Inyaninga Water Reservoir Harvesting sufficient Rainwater west of KSIA. Consultation with to supply ablution facilities and eThekwini Water to upgrade reduce water usage costs and existing water networks to reliance on the Municipality.
20 Mount Moreland Precinct Plan, 2010
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cater for increased water flow through the area. Implement Rain Water Harvesting through installation of sheeted roofing and JoJo Tanks. Barn Medium Long Term Co-ordinate construction with Development of the proposed Swallows Bird Migratory patterns, site leaving Birds and tourists (Tourism Loss construct the development unaffected. and Animal during cooler periods such as Habitat Winter. Noise reduced operation to Protection) Allow for industrial ensure Birds and Tourists are warehousing to be unaffected by the soundproofed so as reduce development. audibility within local area. Congestion Medium Long Term Integration with future Arterial Network of road linkages, linking Roads: Consultation with up to the N2 and R102 for eThekwini Transport Authority facilitated transport as to planned roads connectivity to the proposed envisaged to intercept the development from all major R102 and N2. transport destinations.
Request for road network and road quality upgrades. Developable Very High Long Term Feasibility to determine the Evaluation of the feasibility to Land cost of developing and develop as well as the preparing land available. recommended size of Environmental Impact developable land. Assessment to evaluate the impact which sensitive areas The EIA will inform whether the have on the proposed development will have any development. environmental issues.
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8 RECOMMENDATIONS
NET EFFECTIVE DEMAND
The following development characteristics have been recommended for the proposed site.
Table 25: Overall Net Effective Demand for Multi-Use Development, 2016 - 2036
GLA (m2) / Year 2016 2021 2026 2031 2036 Office -123 857 -92 979 -50 460 -3 113 49 626 Residential -5 311 -22 516 -9 147 11 776 8 777 Retail -122 487 -90 139 -52 635 -9 155 41 255 Industrial 31 078 116 510 214 204 325 921 453 676 Total -220 577 -89 124 101 962 325 429 553 334 Source: Urban-Econ Modelling, 2016
The proposed site warrants sustainable development from 2031 (15 years) onwards, this is due to the high levels of supply evident in retail and commercial office space available. The development of the Industrial aspect should commence under initial construction as demand for industrial space currently exists ahead of supply. By 2036, a total of 55.3 ha will be required from this multi-use development, with Industrial land use occupying the majority of space, followed by retail and then office. The increase arising from employment will give rise to a corresponding upsurge in residential take up, however this is not completely certain as employees may opt to live away from where they work, this will all depend on what incentives are offered.
ECONOMIC IMPACT ASSESSMENT
The following table highlights the economic impact of the capital expenditure.
Table 26: Economic Impact of Capital Expenditure
Economic impact multiplier Direct Indirect Total Additional New Business Sales R 3 887 057 424 R 4 873 909 781 R 8 760 967 204 Additional Gross Value Added R 1 286 298 563 R 1 826 360 190 R 3 112 658 753 Additional Income Created R 681 293 586 R 855 204 997 R 1 536 498 582 Additional Employment Created 8 443 6 558 15 001 Source: Urban-Econ Modelling, 2016
The following can be highlighted: A total of R8.8 billion New Business Sales will be created directly and indirectly in the regional economy; This will translate to Total Value Add of R3.1 billion to Gross Geographic Product; The households benefitting from economic activity created by the capital expenditure will see their Income increase by approximately R1.5 billion; The capital expenditure phase will create a total of 15 001 jobs.
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PROPOSED LAYOUT CONSIDERATIONS
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SOCIAL IMPACT ASSESSMENT
Mitigation measures are given for impacts identified as negative. If these mitigation measures are used, the significance rating should decrease and reduce the overall negative externalities of the development. The consequence ratings or probabilities in brackets are the new consequence ratings or probabilities once a mitigation effort has been put in place.
Table 27: Impact Mitigation
Significance Significance Consequence Socio-Economic Impacts Probability before after Rating mitigation mitigation Highly Road Infrastructure Medium Medium Medium Probable Stress on electricity supply Medium Definite Medium Medium Highly Municipality Stress on storm water Medium Medium Medium Probable Stress on waste water Medium Definite Medium Medium Stress on water supply Medium Definite Medium Medium Tourism Barn Swallows Medium Probable Medium Low Local Congestion and Noise High Probable Medium Medium Environment Developable Land High Probable Medium Very High
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9 MOUNT MORELAND – SOCIO-ECONOMIC TREND ANALYSIS
This section focusses on the socio-economic profile of the immediate study area. This socio-economic profile analysis fulfils an important role in the indication of development potential within the relevant area. The socio- economic profile trends are illustrated in the graphics which follow.
Figure 27: Socio-Economic Trends - Mount Moreland
Source: Quantec, 2016
DEMOGRAPHICS
Within the entire Mount Moreland area, it is recorded that a small population of 241 are resident, estimated to be living within 81 households. This equates to 3 individuals per household, which is relatively low in density, as is the Households per square kilometre (280). A negative growth rate of 1.1% per annum was experienced for the periods between 2001 – 2011, with a notable net migration out of the area of 3% of the total population. Population growth has also declined by 0.9% per annum.
EDUCATION
Mount Moreland is characterised by high education levels, approximately 62% of the population have been educated beyond matric, 29% of the population have an extensive degree of secondary schooling and the minority (just 8%) have at least completed primary school.
AGE PROFILE
The area has a large percentage of the population who are of working age (68%) comprising a potentially productive workforce between the ages of 15 and 64 years of age, 19% are characterised as youth (aged: 0 - 14) and this presents some fruit in the form of future incoming earning and economic potential. A mere yet evident 13% of the population are characterised as elderly, aged above 65.
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EMPLOYMENT
The majority of Mount Moreland’s working age population are employed (almost 72%), while only 4.8% are unemployed and 23.5% have been characterised as not economically active. These figures are highly commendable for the area, due to the high levels of unemployment present currently within the Province (20.8%) and the Municipality (16.5%).
Labour Force Participation Rate: 76.5% Labour Absorption Rate 48.5%
HOUSEHOLD INCOME ANALYSIS
Most households in the Mount Moreland earn a middle to low income (76.5%), incomes range between R9 601 – R307 600 per annum or R 800 to R 25 600 per month, with 12.3% of households earning no income at all. A small minority (11.3%) earn above R 307 600 per annum, however the income ceiling is capped below R 1 228 800.
ECONOMIC OVERVIEW
The figure below provides an indication of the year-on-year growth in gross domestic product (GDP) as gross value added (GVA) at constant 2005 prices for the study area between 2007 and 2016. Growth pre-recession appears to be highest exceeding 5.1% per annum, dropping to 0.5% during the recessionary period. A strong recovery (4.3%) was observed in 2011, thereafter a prominent yet even decline to 1.2% was experienced in 2015. It is predicted that through the analysis of past GVA trends within Mount Moreland, GVA is anticipated to grow by 3.1% within the current year (2016) – this is 0.5% higher than eThekwini North which is understandably lower because of rural and impoverished areas being included within the northern eThekwini precinct.
Figure 28: Year-on-year growth in GDP for Mount Moreland, 2007 – 2016 (Projected)
Source: Quantec, 2016
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The following figure indicates the economic contribution of each sector of the economy in the study area in 2015.
Figure 29: Economic Contribution (GVA) per Sector for the study area, 2015
Source: Quantec, 2016
The Finance sector was the largest contributor to the economy within the study area, generating a total contribution of 26.9% to the economy. The Manufacturing sector contributed 18.3% while the Wholesale and Retail Trade sector and the Community and Social sector contributed 15.8% and 13.0% respectively to the total GDP. Of these sectors, sub sector growth was highest in the Finance and Social services sectors.
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