PROPERTY MARKET REVIEW

DURBAN

ETHEKWINI MUNICIPALITY ECONOMIC DEVELOPMENT UNIT

2006/2007

DOCUMENT PREPARED BY: Viruly Consulting (Pty) Ltd

Contribution from Ramesh Amrit (Letchimah Daya Mandindi)

LDM PROPERTY RESEARCH Viruly Consulting (Pty) Limited A Division of LETCHMIAH ⏐ DAYA ⏐ MANDINDI Registration Number: 99/15100/07 Director: F M Viruly (Dutch Ethekwini Property Market Review

CONTENTS

PAGE NO.:

EXECUTIVE SUMMARY 1

1. INTRODUCTION 3

1.1 THE BRIEF 3

1.2 REPORT STRUCTURE 4

2. THE SOUTH AFRICAN PROPERTY MARKET 5 2.1 THE MACRO ENVIRONMENT 5

2.2 MACRO PROPERTY TRENDS 6

3. THE ETHEKWINI MUNICIPALITY IN CONTEXT 12

3.1 THE ECONOMY 13

3.2 THE NODAL PROPERTY MARKET 18

3.2.1 THE CBD 20

3.2.2 THE INNER WEST NODES 21

3.2.3 THE OUTER WEST NODES 22

3.2.4 THE NORTHERN NODES 24

3.2.5 THE SOUTHERN NODES 26

3.2.6 THE SIZE OF THE COMMERCIAL MARKET 28

4. PROPERTY MARKET INDICATORS 32

4.1 THE DURBAN CBD 34

4.2 THE INNER WEST NODES 35

4.3 THE OUTER WEST NODES 36 4.4 THE NORTHERN NODES 39 4.5 THE SOUTHERN NODES 41

5. INVESTMENT INCENTIVES AND URBAN REGENERATION 43

5.1 REGENERATION PROJECTS 44

5.2 THE POINT WATERFRONT 45

5.3 THE DURBAN INVESTMENT AGENCY 46

5.4 THE URBAN DEVELOPMENT ZONE 47

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6. CONCLUDING REMARKS 48

7. REFERENCES AND NOTES

All care has been taken in the preparation of this document and the information contained herein has been derived from sources believed to be accurate and reliable.

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Viruly Consulting (Pty) Limited does not assume responsibility for any error, omission or opinion expressed as well as investment decisions based on this information.

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EXECUTIVE SUMMARY

The South African property market is benefiting from a strong macro-economic environment, characterized by a stable inflation rate and improved prospects for economic growth. This is translating into a decline in vacancy rates, rising rentals and capital values in most sectors of the South African property market.

The Durban metro is underpinned by strengthening conditions in the manufacturing and tourism sectors and more specifically the growth of the port. The latter will continue to offer both opportunities and challenges – especially from an infrastructural perspective.

The Durban metro’s retail, office and industrial market are currently booming mainly due to the favourable macro commercial market fundamental and this has resulted in positive real returns in most sectors of the market. The 2005, investment returns produced by the Investment Property Data Bank (IPD) are at their highest since the data was collated in 1995, with the industrial and retail sectors recording returns above the 30% level. Office sector returns are also showing a significant improvement.

From a more micro perspective, demand for industrial and office space remains buoyant in major nodes of the eThekwini market. Such nodes include the Berea, Umhlanga/La Lucia Ridge and Westville. Moreover, the CBD is also showing increased demand, especially from smaller tenants, and ABSA’s decision to reinvest in the CBD and Standard Bank’s decision to relocate to the Kingsmead Office node is reflective of renewed investor confidence.

Added to this, nodes such as Kingsmead are being supported by public sector initiatives. Kingsmead is expected to benefit from the development of a proposed international sports precinct supported by the eThekwini municipality and its joint partnerships and Durban Investment Promotion Agency. These organisations have also been involved in facilitating urban regeneration projects such as Warwick Junction and the Point development. The flagship development of uShaka Marine Theme Park has further provided a catalyst for the further development of the Point into a vibrant mixed-use development. Therefore it can

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Durban Property Market Review be argued that the market is benefiting from improved market conditions resulting from strong market fundamentals and appropriate public sector interventions.

A disaggregation of market statistics suggests that rentals are generally on the rise reflecting higher building costs. In Umhlanga/La Lucia and Westville, rentals for newer stock are driving peak rentals to levels above R80/m². Market rentals for existing “A” grade space are moving towards the R75/m² mark. The impact, which this will have on building activity, will be dictated by the trajectory of building costs and the desire by new investors to initiate new projects.

The retail market is also showing signs of strong investment returns and investors are matching this with proposals for new retail developments. Reflecting national trends, this interest in this sector is extending into new nodes such as and other townships in the municipal area.

Development activity is also spreading itself to the southern commercial nodes. These nodes have for decades provided good locations for industrial sector tenants that need to be located in the South Durban Basin and the port. With the proposed relocation of Durban International airport, the potential exists for good industrial land to be released into the market. This land could offer new development opportunities in the region.

The future success of the metropolitan property market will also rely on ensuring that an appropriate city integration is realised, and this will mean the integration of ‘home, work and play’. This will also require a careful assessment of transportation requirements.

For the South African property investor, the challenge will lie in correctly reading the major trends driving the municipal property market. This report plays a role in identifying nodes and sectors that need to be given specific consideration by investors and tenants alike.

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1. INTRODUCTION

The role of the eThekwini Municipality’s Economic Development Unit (EDU) is to guide the municipality in optimising economic development, job creation and redistribution opportunities for the residents of the eThekwini region. A specialised unit has also been set up to focus on private investment and development promotions. This unit has the following roles:

To advise the local government on issues affecting the private sector and investment.

To implement local government programmes to support private sector development and investment.

To advise potential investors on issues affecting their business interests in the Durban Metro Area (eThekwini Municiplity).

This report aims to assist the EDU’s role in encouraging private sector investment through the dissemination of market information to investors. The report primarily considers the status of the Durban Property Market as well as development and investment opportunities in the municipal property sector.

1.1 THE BRIEF

The report is focused on the following:

An introduction to the property investment environment, that includes a broad overview of the macro South African commercial property market, paying special attention to the major market trends impacting on the South African property market.

Economic development, land strategy and other objectives of the eThekwini municipality that may optimise property development and investment.

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Emphasis on special features of Durban and other regional attributes such as tourism attractions and its unique features.

Discussing the prime industrial, office and retail property nodes of Durban.

Providing updates on major property and infrastructural projects.

Highlighting institutional and other factors that investors should take into account when considering entering the Durban property market.

1.2 REPORT STUCTURE

The report is structured as follows:

Section 2: The section will discuss macro trends affecting the property market in the Durban property market.

Section 3: Introduction to eThekwini municipality – the administrative local government of the Durban property market – an overview of the socio-economic profile of the municipality, and general characteristics of the region. The section will also introduce the main commercial and industrial nodes of the municipality - their characteristics and general development trends.

Section 4: Analyses the property market nodes, characteristics, property indicators and parameters of the different nodes in the urban property market.

Section 5: Discusses political objectives that support property development as well as important policies in place from government level. Major development projects led by the public sector and supported by the private sector in eThekwini will also be emphasised.

Section 6 provides concluding remarks.

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2. THE SOUTH AFRICAN PROPERTY MARKET

The macro economic environment has a significant impact on micro property trends in South African cities, especially in determining the level of development activity and where this activity takes place. But at the same time the demand for commercial space is a function of the performance and future prospects of the local economy.

2.1 THE MACRO ENVIRONMENT

The macro property market operates within an institutional framework that is influenced by four main drivers, namely, socio-political, economic, financial, and technology and infrastructure. To this could be added issues such as lifestyle as illustrated in the Figure 1 below. These factors influence:

The type of investments that occur;

The property cycle and its various peaks and lows; and

And where developments occur in cities.

Figure 1: The Macro Drivers of the Property Market

Social & Political Macro Economy – Urban regeneration Low Inflation environment Housing & Environment Interest rates stable Property Charter Economic growth Foreign Ownership Business confidence Land Restitution PPP’s Investment incentives

The SA Property Market

Transport - Pressure with Lifestyle – Higher economic ‘Home, work and play’ growth Mixed-use developments Traffic congestion Neighbourhood developments “ A housing issue” Specialized retailing Motorized/ Non Motorized

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Social and Political – This relates to market and political institutions and their impact on property investments and developments. Although all three tiers of government, influence property related policies, it is at local government level where the property market is most directly affected through for instance, Integrated Development Plans (IDP’s), Spatial Development Frameworks and Plans, Local area plans, Precinct plans and town planning policies and practices. Urban regeneration and investment incentives, at local government level, are similarly playing a role in directing the property market.

Macro economy – The South African property market is influenced by conditions in the macro economy. For instance investment decisions are sensitive to economic growth expectations as well as the direction of the inflation rate and interest rates. The macro economy also influences conditions in the local economy and the corresponding demand for space.

Transport and Infrastructure - Infrastructure provision has a strong influence on property development and investment decisions. For instance, traffic congestion is becoming a critical issue in many South African cities and is starting to influence locational decisions. In Durban, levels of traffic congestion have become of significance in the northern commercial nodes of La Lucia/Ridge Umhlanga and . Although the trend remains unclear, there are indications that traffic congestion could in due course shift tenants back to the Central Business District (CBD) and its periphery, where infrastructure seems to be adequate.

2.2 MACRO PROPERTY TRENDS

This section of the report looks at the macro drivers of the property market and how these will in due course impact on the Durban property market.

As already mentioned, the relatively good performance of the Macro economy is underpinning the Durban Property Market. The challenge will lie in ensuring that the Durban market captures these benefits and that the property market plays a role in improving economic efficiencies.

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The drivers for the different components of the market differ for the office, retail and industrial markets.

The Retail Sector The retail property sector is both dictated by trends at the macro and micro level. Macro economic parameters influence consumption expenditure and therefore national retail sales.

From a micro perspective, retail developments are influenced by the performance of shopping centre catchments areas or the buying power of nodes. In turn this is driven by the performance of specific residential areas. Locational issues are also of importance, with for instance the CBD playing an important role in attracting retailers across the municipal area and beyond.

The overall market view seems to be that the Durban property market continues to offer significant retailing opportunities. This being equally true for the higher income northern nodes and the lower income township market. More specifically investors are eyeing the southern nodes of the municipal area, which have not received significant investor interest in recent years. Several shopping centres have been proposed in and around the area.

The Office Sector The office sector is mainly driven by conditions in the local economy as well as the attractiveness of a city as an office location. In the early 2000’s the macro office sector in general experienced depressed conditions mainly reflecting a period of heightened oversupply, high vacancy rates and a resulting decline in rental increases. This not only affected the already depressed CBD market, but also impacted on the performance of decentralised nodes. From 2004 onwards the sector stabilised with vacancies starting to decline, this in turn has led to improved prospects for rental increases and development potentials. The vacancy trends are discussed in greater detail in other sections of this report.

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The past decade has seen a decentralization of office nodes in most South African office markets –this in turn has left CBD’s with high vacancy rates and low levels of investor interest. Yet, the scenario is changing with the capital value of properties in such nodes rapidly rising and new investors entering the market.

The Industrial Sector The industrial sector tends to be a market that is not as speculative as the office market and retail markets. Most developments in this sector of the market tend to be tenant-driven and highly dependent on the performance of the local manufacturing sector. This sector is also showing an upswing, after a period of high vacancies and low rental increases. Market data suggests that there is a shortage supply of well-located industrial space and that there is demand for industrial land in the different commercial nodes of the municipality.

The Durban property market has been at the forefront of the national industrial sector recovery with nodes such as Briardene and Riverhorse Valley Business Estate showing rising demand. Large national tenants have also been keen to take up space with good highway frontage and exposure.

Future growth of the sector will rely on the municipality stimulating sectors that have good long-term prospects and to ensure that such sectors are appropriately clustered. The expected growth in the port will also remain an important parameter in determining the future demand for industrial space.

Mixed-use Developments The focus on mixed-use developments, which includes business estates, with other uses is growing in popularity. Such developments are an attempt to create an attractive life style. Mixed-use developments can either be of a private sector nature, or created through specific public sector interventions. The Umhlanga office and retail node, through its new town centre, is possibly a good example of this trend.

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The Point Waterfront also offers an opportunity for the development of such a mixed-use development. But, such developments come with numerous challenges, especially as different uses come in close proximity to each other.

The further challenge lies in ensuring that such mixed-use developments occur in different parts of the city. While in the more affluent areas such developments are often initiated by the private sector, in lower income areas this role often needs to be initiated by the public sector.

The Investment Property Data Bank (IPD), provides the following disaggregated figures for the South African property market.

Table 1 below illustrates the trend in property returns over a ten-year period.

Table 1: Total Returns for the Property Market

95 96 97 98 99 00 01 02 03 04 05

Retail 16.9 17.2 23.0 9.1 17.9 10.4 13.4 11.0 17.4 26.1 33.0

Offices 14.8 9.9 12.8 1.6 9.5 12.7 7.8 5.1 8.5 16.7 24.5

Industrial 13.5 17.9 16.8 2.1 8.3 7.1 7.5 8.8 17.5 24.4 33.1

Other 15.2 16.9 18.1 5.1 24.9 16.6 10.0 20.5 25.4 27.5 26.0

All property 15.3 14.1 17.5 5.1 13.7 11.2 10.6 9.5 15.1 23.4 30.1 Source: IPD, 2005

The strong returns achieved for all property sectors from 2003 to 2005 were driven largely by the substantial reduction in interest rates and the accompanying reduction of property capitalisation rates. This placed upward pressure on both yields and capital values.

In 2005, the industrial sector outperformed the market as a whole recording total returns of 33.1%, (this takes into account both capital growth and income return). But generally it is the retail sector that outperformed the market in recent years, resulting in this sector of the market showing the greatest investor

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In understanding the possible direction of future returns, consideration should be given to expected supply. In this regard, building plans and completed require analysis.

Graph 1: National property market - Total-building Plans Passed for the Non-residential Property Sectors

250,000

200,000

150,000 2 m 100,000

50,000

0

7 8 3 4 5 9 0 1 2 6 8 8 9 9 9 9 0 0 0 0 9 9 9 9 9 9 0 0 0 0 1 1 19891990199119921 1 1 1996199719981 2 2 2 2003200420052

Industrial Office Shopping

Source: Stats SA

Building plans passed have been on the rise in the past two years reflecting an improvement in market conditions. In terms of the Durban property market building activity, is also on the rise, as illustrated in graph 2 below. Building plans passed in the Durban property market more than doubled for the industrial, retail and office sectors from 2003 to 2005. In 2003 building plans passed for the industrial sector increased by 91%, while the retail sector grew by 234% and the office sector grew by 119%.

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Graph 2: Durban property market – Total Building Plans Passed for the Non-Residential Property Sectors

Durban - Building plans passed (sqm)

80000 70000 60000 50000 Office and Banking Space (m²) 40000 Shopping Space (m²)

SQM Industrial Space (m²) 30000 20000 10000 0 2003 2004 2005

Source: Economic Development Unit

But future prospects for building plans passed will be determined by building costs. Present forecasts suggest that projects will be unviable under present conditions.

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Graph 3: Building Cost Index

25

20

15

10

% Change 5

0

-5

3 4 7 0 1 4 5 9 9 9 0 0 0 0 / / / / / / / 1 1 1 1 1 1 1 Q Q Q1/95Q1/96Q Q1/98Q1/99Q Q Q1/02Q1/03Q Q

Source: BER

In summary, the property market is currently performing well at the macro level and the Durban property market is expected to benefit from this trend.

3. THE ETHEKWINI MUNICIPALITY IN CONTEXT

The eThekwini Municipality extends over a total area of 2,291km2, which constitutes approximately 1.4% of the total land area of KwaZulu-Natal. The municipality incorporates just over a third of the total population of KwaZulu- Natal or approximately 3.09 million people. It has approximately 700,000 households and is responsible for 60% of the provincial economy.

In considering the future opportunities and challenges of the municipality, consideration should be given to the significant population growth expected in the medium to long-term. Demographic statistics suggest, that the municipal population grew by an average 2.45% per annum between 1996 and 2001. It is likely that demographic growth patterns will reflect those seen in municipalities such as Ekurhuleni, the City of Joburg and Tshwane. Although growth forecasts are indicating a slow down of population growth, the higher level of urbanisation in the province is expected to provide new challenges for local property market.

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It can be argued that demand for residential land will intensify the contention whether land should be used for commercial or residential uses.

3.1 THE ECONOMY

Durban, the major city of eThekwini Municipality, is the location of ‘s major port city and is home to the second largest industrial hub after Gauteng. Durban plays an important role as the trade route for export and import industries in South Africa, especially from eastern markets.

The main access route to the municipality is via the freeway, which links the municipality to the southern regions of the Eastern Cape and the northern regions towards Mpumalanga. The N3 freeway is a direct link between the municipality and neighbouring Pietermaritzburg as well as to the Western provinces – directly leading to the Johannesburg market.

In terms of the Integrated Development Plan (IDP) Review of 2005/2006, the Municipality is recording an economic growth of some 4% per annum. The municipality has set an economic growth target of 7.5% and it has been suggested that this target would be required in order to address existing levels of unemployment.

The GGP forecast, as depicted in Graph 3, shows an increase from approximately R98 million in 2005 to approximately R113 million in 2008 indicative of a positive view for property investments and developments supporting investment sectors.

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Graph 4: eThekwini GGP Forecast – 1996 to 2008

R 120,000,000

R 100,000,000

R 80,000,000

R 60,000,000 Rm

R 40,000,000

R 20,000,000

R 0

7 8 1 2 4 5 8 9 9 0 0 0 0 9 9 000 0 0 0 007 0 1996 1 1 1999 2 2 200 2003 2 2 2006 2 2 Year

Source: Economic Development Unit

In terms of the IDP Review [2005/2006], the GGP income per person in eThekwini is R25,290, which is higher than the South African average, R17,756.

In considering the structure of the local economy; manufacturing, tourism, finance and transport are the major economic contributors to the local economy, with the manufacturing sector playing a dominant role, this is illustrated in Graph 4.

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Graph 5: eThekwini – Gross Value Added per Sector

0% 19% 29%

2%

3% 20% 12% 15%

Mining Manufacturing Electricity construction Trade Transport Finance Community Services

Source: Ethekwini Municipality, Global Insight

The manufacturing sector is also the largest employer in the municipality, followed by trade and community services. From an industrial policy perspective, the municipality has numerous policies that create a supportive environment for this sector. This includes the emphasis placed on certain sectors that offer growth potential. Added to this is an emphasis on local development zones that support existing economic clusters and which encourage opportunistic markets. The Economic Development Unit defines Local Economic zones as:

“…commercial and industrial areas of key economic significance, which receive dedicated management and development through a partnership between the Municipality and stakeholders for the prime purpose of retaining and attracting investment on a sustainable basis. They are necessarily zones of economic importance that are under performing or where a maintenance or enhancement of performance is needed.”

These interventions are complemented with spatial incentives such as the recently initiated Urban Development Zones (UDZ’s) which aim at stimulating property investments in, demarcated areas – UDZ’S details will be discussed in

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It is estimated the informal sector in Durban employs approximately 25% of the municipal labour force. This is equivalent to approximately 300,000 people, and the challenge lies in formulating industrial and urban development policies that support this sector of the market, and here the built environment has a role to play.

In terms of the quality of life, which is an important determinant in spatial decision-making, the IDP Review reveals people residing in the municipality are most in need for:

Housing and household services;

Safety and security;

Jobs/economic development;

Community infrastructure;

Health services;

Governance issues;

Transport;

Education and

Social issues and employment opportunities.

The IDP report also states, as can be expected, that the worse-off communities are found in predominantly black townships especially in areas of high concentrations of informal settlements. The future of the property market will to a degree lie in improving the townships and integrating these areas in the overall economy.

Thus, the challenges faced by the eThekwini municipality include the need to strengthen its economic base and creating conditions that will translate in improved socio-economic conditions for all. Other challenges identified in the city’s long-term development vision include:

Poor access to basic household services;

Low levels of literacy and skills development;

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 HIV/AIDS;

 Crime and

 Unsuitable development practices.

Responding to these needs, the long-term development framework for the city aims to accomplish a balance between meeting basic needs, strengthening the economy and building appropriate human skills. More specifically, this translates into interventions that stimulate:

 Sustainable economic growth and job creation;

 Fully serviced, well-maintained, quality environments;

 Safe and secure environments;

 Healthy and empowered citizens;

 Embracing culture diversity;

 Sustaining the natural built environment and

 Democratising local government.

The tourism sector offers exciting opportunities looking into the future. KwaZulu- Natal has the largest number of trips from domestic tourists in the country, estimated to be 49.3 million trips in 2003.

The following table illustrate the top 5 South African tourism markets.

Table 2: Top 5 South African Tourism Source Markets (2003) Province Number of Visitors

KwaZulu Natal 13.2 million Gauteng 10.6 million Eastern Cape 7.9 million Western Cape 5.1 million Limpopo 4.6 million Source: KZN Tourism

The Durban tourism market is a significant contribution in terms of top tourism destinations in KwaZulu-Natal. This is illustrated in Table 3.

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Table 3: The Top Domestic Tourism Designations in KZN

Destination Nr of Visitors (%) Durban 28.03% Pietermaritzburg/Midlands 13.16% Battlefields 12.44% Drakensburg 9.47% South Coast 14.07% North Coast 10.43% Zululand 10.43% Elephant coast 1.96% Source: KZN Tourism

Durban also attracts 78% of visitors to the province.

In summary, while the municipality has a strong commercial and industrial base, that anchors the property market, the challenge lies in identifying those sectors that offer high growth and employment potential. The success in attracting particular sectors to the municipality will also be influenced by the quality of the built environment. Increasingly locational decisions are based on numerous determinants, which include the availability of housing and other amenities. Thus while local economic growth has an impact on the built environment, the built environment is itself not neutral in fostering economic growth.

3.2 THE NODAL PROPERTY MARKET

The Durban property market expanded from the traditional Central Business District (CBD) focussed around the port. With time the city developed to the south, the west, and more recently to the northern regions of the municipality. Annexure A, illustrates the commercial and industrial property market in Durban.

The CBD, has historically played the role of a traditional service centre to the eThekwini municipality with most offices and retail outlets situated in the node. A second commercial node included the commercial developments to the west, such as the Berea and Musgrave. The western regions attracted some of the first commercial nodes established outside of the CBD. To this should be added the

2739/KG Page 18 Durban Property Market Review far western commercial nodes established around Westville and , which developed at a later stage.

The third commercial cluster, which has seen significant growth in the past decade lies to the north of the CBD and includes the commercial nodes of La Lucia/Umhlanga and Mount Edgecombe. Industrial nodes located in this northern region include Briardine, Springfield Park, Umgeni and the fast developing Riverhorse Valley Business Estate. The Southern nodes, which are primarily of an industrial nature, include Amanzimtoti and industrial developments close the port and Airport. The southern nodes are also in closest proximity to low income township areas such Umlazi.

The important point is that these different functional areas largely complement each other and offer different opportunities for tenants and property investors alike.

Thus the main property market nodes of the Durban Metro can be divided into the following functional areas:

Table 4: The Nodal Property Market Node Areas CBD Durban CBD Berea, Musgrave and other closely Inner West nodes located commercial nodes. Westville, Pinetown, and industrial Outer West node nodes such as New Germany, West and Mahogany Ridge. Umhlanga/La Lucia Ridge. Mount Edgecombe, Briardine, Springfield Northern nodes Park, Riverhorse Valley Business Estate. Amanzimtoti, South Durban Basin, Southern nodes and other associated commercial nodes.

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3.2.1 THE DURBAN CBD

The Durban CBD was the first major commercial node established in eThekwini. Like other major CBD’s in South Africa, the decentralisation of commercial property developments have in recent decades negatively impacted on CBD vacancy rates and property values. The characteristic of investors in this market has also changed with smaller, private investors, playing a more pronounced role. The positive impacts of urban regeneration initiatives are starting to be felt with vacancies declining and investors showing greater interest in investment opportunities. A further positive trend has been the rise in the number of renovations seen in the CBD, with investors taking advantage of Urban Development Zone (UDZ) fiscal advantages. Of importance is that ABSA, a leading financial bank has relocated its operations and consolidating most of their current decentralised departments to the CBD on Smith and Gardiner Street.

The retail sector continues to play a critical role in the CBD, serving different income groups; the retail offering is also highly accessible to shoppers without private transport. The Workshop and the Wheel Shopping Centres are important shopping destinations in this node.

The CBD office sector caters both the private and public sectors. Micro locational issues such as the affordability of space, makes it attractive for tenants to either stay, relocate or expand in the CBD.

Industrial developments extend to the southern nodes of the municipality, adjacent to the CBD, this also means that the CBD offers industrial space in relatively close proximity.

The Kingsmead node, the location of the Durban ICC a premier convention centre, strongly complements the CBD. These and other initiatives, suggest that the Durban CBD continues to offer a vibrant property market offering both

2739/KG Page 20 Durban Property Market Review commercial and residential opportunities. Such opportunities are being strengthened by urban regeneration policies such as the Urban Development Zone Tax Incentives (to be discussed later in the report).

Environmental pressure on new “Green Field” developments also means that in future developers will target development opportunities on land that has already been developed “ Brown Field “ developments. This could well encourage new developments or renovations in the CBD.

3.2.2 THE INNER WEST NODES

The inner west nodes comprise the Berea, Musgrave and Glenwood. Berea is the main commercial node in these nodes with the retail sector playing an important role. This commercial node has a strong upper income residential component, which acts as a critical anchor, especially for the retail sector. The node is readily accessible via Berea Road, which intersects the N3 freeway. The node is well linked with the city centre, and has good access to the far western suburbs e.g. Westville.

The Musgrave Centre was developed in 1956 and has since been an important retailing facility in the Durban market.

Musgrave Road provides a link with the Florida Road strip, to the north, where a number of offices have located in recent years. Most of these are converted homes. Since the availability of land on the Berea is limited, new developments are unlikely to occur and so the focus is on renovations.

Recent new major renovations include a refurbishment of the Price WaterHouseCoopers Building. The Berea Centre is also due for renovations into a retail and residential mixed-use development. The Berea centre has a few vacancies but tenants such as are Pick & Pay, PEP, a gym and the Millenia School of Business are still operating in the centre.

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3.2.3 THE OUTER WEST NODES

Westville, in the western sector of the Durban metropolitan region, is characterised by a mixture of residential and dispersed commercial uses. Direct access to Westville is via the N3 highway, and the M13 Jan Smuts Highway. The node is also highly accessible from and to the Berea, the Durban CBD, and the far western commercial Pinetown node.

The office sector in Westville comprises a number of relatively dispersed office parks. Generally the node has developed as a decentralized commercial node. Prime office developments include the Westway Office Park, located off the St. James Road off-ramp, on the N3.

Examples of other office nodes in the Westville area are Derby Downs and Essex Terrace Office. Tenants in such developments tend to be medium-sized and include IT companies, advertising agencies, and professional practices. Essex Terrace for example offers B-grade office space and rentals are more competitive than that found at Westway and Derby Downs.

Notable national tenants include:

In Essex Terrace, tenants such as Masters Builders Association and Old Mutual Properties.

In Derby Downs, the office developments comprise low-rise office parks which houses tenants such as Discovery, Odyssey, Verimark and Harbour Marine Group.

Westway, which includes tenants such as Dimension Data, Pick ‘n Pay, Murray & Roberts and Santam. Four new office developments are occurring within the Westway node.

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A small office node, which consists of office parks, has also developed next to the Westville Mall on Buckingham Terrace Road and includes tenants such as Business Partners and WSP.

The Pavilion Shopping Centre is the main shopping centre in the region - it is 100,000m in extent and serves a wide catchment area. The Westville CBD is also characterised by a variety of convenience retail facilities, giving the node a “village” feel.

Market commentators suggest that Westville is facing stiff competition from Umhlanga as a commercial and retail node – but, at the same time there is a view that Westville has relatively low levels of traffic congestion compared to that experienced in Umhlanga/La Lucia which should underpin its place in the market.

Pinetown offers a commercial node at the far western extremity of the municipality. The Pinetown CBD is accessed from the N3 via the St John’s Avenue off ramp. The Old Main Road is the main activity spine for commercial property in the node and nearby industrial nodes include New Germany, Mahogany Ridge and Westmead.

Land uses found in the node include commercial developments as well as civic uses. Car dealerships for various car manufacturers including Toyota, Renault, BMW and Mercedes Benz are situated along the main road. Other uses include quasi-industrial activity selling building products to the public.

Retail facilities include the Sanlam Centre with tenants such as Game, Pick ‘n Pay, Woolworths and Clicks. A new retail development is also being built on Kings Road.

In terms of industrial nodes, New Germany, is one of the more developed and older industrial nodes in Durban. New Germany is made up of four distinct

2739/KG Page 23 Durban Property Market Review areas, namely North Industria, Pineside, Falcon Industrial Park and Mountain Ridge, which is adjacent to the New Germany Nature Reserve. The wider node is characterised by a variety of light manufacturing activities including, inter alia: foods, textiles, metals, machinery, automotive components, paints, chemicals and pharmaceuticals.

Westmead and Mahogany Ridge to the west offer light industrial and distribution uses. To this should be added warehousing and packaging and logistics related services tenants in Westmead include MAN Truck and Euro Steel. The older part of Westmead includes tenants such as Hi Q; Nissan; Waltons; GSA (Glass South Africa) and Shatterprufe.

The industrial sites are well serviced with generally good accessibility, and transport infrastructure.

3.2.4 THE NORTHERN NODES

The Umhlanga node is located to the north of Durban. It is a growing office node concentrated on the eastern and western sides of Umhlanga Rocks Drive. The node has a strong residential base, which in the past few years has been complemented with retail and office developments.

In close proximity, the La Lucia Ridge Office Estate has become Durban’s premier decentralised office location. It attracts blue-chip companies, and includes companies in the financial sector such as Deloitte & Touche, Alexander Forbes, Ernst and Young. To this list one can add Cell C and Unilever.

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New and recent office developments includes:

Lot 65 Sinembe Park – approximately 2,241m²;

Park 9 – approximately 920m²;

Park 10 – approximately 1,020m²; and

92 Armstrong Avenue.

Looking at the municipal area as a whole, the Umhlanga/La Lucia node has shown rapid commercial and upmarket residential take up. A large proportion of relocations of companies from the Durban CBD has been absorbed in this market. The 110,000m2 Gateway shopping and entertainment centre situated in the node is the fourth largest shopping centre in the country after Santon City (127,380m²) in Sandton, Gauteng; Canal Walk (125,000m²) in Milnerton, Western Cape and Menlyn Park Shopping Centre (115,000m²) in Tshwane, Gauteng.

Office developments in Umhlanga are characterised by low-bulk and landscaped office parks which has a relatively high owner-occupancy compared to rented stock. Numerous car dealerships have located in the node to benefit from the relatively affluent demographic characteristics of the node.

The Umhlanga New Town Centre is a project envisioned to enhance the attractiveness of the node and to anchor developments around it. The new town centre is a mixed-use development built around a series of squares, parks and boulevards surrounding the Gateway Theatre of Shopping. The precinct is one of the largest property development projects in South Africa.

Umhlanga Ridge and La Lucia Ridge Office Estate are the premier destination for corporates in KwaZulu-Natal who are prepared to pay higher prices for the strategic location with good exposure and accessibility.

Further north of the La Lucia Ridge office node is a smaller office node in Mount Edgecombe, which is a strip of office developments with tenants such as MTN, Barlowworld, Illovo Sugar and SARS. Car dealerships are also common in this node.

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The industrial sector in the northern regions is located off the N2 freeway along both the Umgeni and Inanda Roads, and includes established nodes such as Springfield Park, Umgeni and Briardene and also includes the fast growing Riverhorse Valley Business Estate node. This node has good highway accessibility and exposure and includes tenants, which requires distributions and warehouse space such as Mr Price, Tren Tyre, Gestetner, Mercedes Benz, Berco Express and Xerox. On completion Riverhorse Valley will comprise a 160ha industrial business park consisting of separate mixed-use business parks.

Further from the Umgeni Road off-ramp are established nodes such as Briardene, located mainly along North Coast Road. These nodes consist of mainly tenants who require warehousing and light manufacturing space. There is also some high levels of industrial developments in this node.

The Umgeni node, which is an older node, includes a high component of retailing – typically wholesalers and value centres with tenants such as Furniture City, Dial a Bed, Duratile, Hisrch’s, Waltons and Panasonic found in this location.

3.2.5 THE SOUTHERN NODES

The southern nodes of Durban are accessible via the N2 freeway and the M4. These access routes also offer excellent accessibility to the South Coast holiday resorts. The southern nodes cater for a diversity of income groups, from families living in Umlazi to those residing in upmarket apartment blocks.

Amanzimtoti offers a vibrant high street, which runs parallel to the beach. The CBD attracts national tenants and businesses and it serve as a commercial centre for the southern regions of the

2739/KG Page 26 Durban Property Market Review municipality. Examples of tenants include banks, real estate businesses, doctors and lawyers.

Shopping centres in the Amanzimtoti area include the Seadoone Mall, anchored by Clicks and Checkers and the Amanzimtoti Sanlam Centre.

The expansion of the Amanzimtoti CBD has been constrained by physical factors such as the coast, the Amanzimtoti River, the railway line to the west of the CBD, and the N2 freeway. The Spatial Development Framework for eThekwini recognises the importance of Amanzimtoti as a major commercial centre of the south of the municipal area and its ability to serve areas such as Umlazi.

The South Durban Basin (SDB) is one of the main established industrial nodes in Durban property sector. The industrial nodes that make up the South Durban Basin are located south of the Durban International Airport (DIA). The Industrial nodes include , and .

The dominant industrial activities in the southern region include the Durban port and Airport. This also includes related activities such as shipping and engineering, warehousing, and logistics companies. With the view that the airport will be relocated to , there is an expectation that in due course there will be a substantial release of land into the industrial market. The eThekwini Municipality is currently reviewing the impact of the relocation of the airport in the Spatial Development Plan for this region.

Other important industrial activities include motor- related businesses. Toyota SA has a large presence in the area and has attracted relates services to support the manufacturing of motor vehicles. A Durban Auto Supplier Park is also under consideration. In general, Toyota is an important anchor for the node. Other industrial activities include manufacturing of paper,

2739/KG Page 27 Durban Property Market Review plastic processing, wood and furniture and chemicals. Mondi, a major paper manufacturer, is also an important tenant in the SDB.

The South Durban Basin (SDB) is also characterised by relatively heavy, older industrial areas if compared to prime nodes in the western and northern areas of the municipal area.

The most notable development in the node is the 127ha Southgate Business Park. The main investors and tenants at Southgate Business Park include Old Mutual, Volvo South African Transport Industries, Aunde Car Trim, Auto Carriers, Standers Transport, Royal Swazi Distillers, Celtic Freight and Siyaphambile Transport.

3.3 THE SIZE OF THE COMMERCIAL MARKET

An attempt to quantify the size of the Durban property market is made difficult due to a lack of reliable data. The accuracy of data also varies from one sector of the market to the next.

SAPOA (the South African Property Owners Association) and the South African Council of Shopping Centres provide statistics that provide an estimate of the size of the office and retail markets for various nodes in the study area.

According to the SAPOA Office Vacancy Survey the distribution of office space in Durban’s major nodes is as follows;

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Table 5: Size of the Office Market in m² Type of Uhlanga/La Durban CBD Berea Westville Space Lucia P-grade 4,706 A-grade 114,038 31,596 30,365 141,683

B-grade 42,736 79,064 22,932 363,947 C-grade 231,349 34,834 3,905 Total 709,334 109,166 109,429 173,181 Source: SAPOA, 2005

The table illustrates that the greatest concentration of office space in the municipal area lies in the Durban CBD. In the case of premier grade office space and A-grade office space, a high concentration is found in the Umhlanga/La Lucia node - although the CBD offers 709.334m² in total office stock, the highest concentration of office stock in Durban. The CBD and Berea also offer a significant amount of lower (B and C) grade space. This invariably implies that an improvement in market conditions could in due course offer opportunities for renovations

In terms of the concentration of shopping centres, the northern nodes stand out with approximately 234,695m², followed by the outer west nodes at 230,303m². This data does not take into account freestanding retailers or street front retail properties, which are found mainly in the Durban CBD and smaller CBD centres such as Pinetown and Amanzimtoti.

Table 6: The Size of the Shopping Centre Sector Inner Outer Durban Northern Southern west west CBD nodes nodes nodes nodes Total space 84,763 55,838 230,303 234,695 60,782 Source: South African Council of Shopping Centres

The distribution of shopping centres is highlighted in the Tables 7 to 11 below.

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Table 7: Durban CBD Shopping Centres

Name of Centre Size (m2)

The Wheel Shopping Centre 29,021 The Workshop 20,079 Shoprite Centre Brittania 9,438 Beachview Mall 9,286 Broadwalk 6,556 Old Acre Plaza 6,103 Wilson's Wharf 4,253 Total 84,736 Source: South African Council of Shopping Centres

Table 8: Inner West Nodes Shopping Centres

Name of Centre Size (m2)

Musgrave centre 32,122 Berea Centre 17,760 The Glenwood Village 5,956 Total 55,838 Source: South African Council of Shopping Centres

Table 9: Outer west Nodes Shopping Centres

Name of Centre Size (m2)

The Pavillion - Westville 100,000 Sanlam Centre - Pinetown 38,980 Knowles Centre - Pinetown 15,038 The Village Market 11,158 Fields shopping centre - 9,000 Village mall - Kloof 9,000 Hillcrest Village Centre 8,268 Richdens Village Centre - Hillcrest 8,268 Standard Bank Centre - Westville 7,500 Ithala Power Centre - New Germany 5,900 Maytime Centre - Kloof 4,978

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Name of Centre Size (m2) Hillcrest Centre 4,713 The Colony - Hillcrest 4,000 Hillgate Centre - Hillcrest 3,500 Total 230,303 Source: South African Council of Shopping Centres

Table 10: Northern Nodes Shopping Centres

Name of Centre Size (m2)

Gateway Theatre of shopping 110,000 La Lucia Mall 35,043 The Crescent 25,237 Value Centre - Springfield 19,887 The Home Centre - Springfield 18,298 Mount Edgecombe 10,000 Joshua Doore - Umgeni 6,760 Protea Mall - Umhlanga 4,970 Dolphin Coast Shopping Centre - Ballito 4,500 Buxton Village - Umhlanga 4,253 Total 234,695 Source: South African Council of Shopping Centres

Table 11: Southern Nodes Shopping Centres

Name of Centre Size (m2)

Bluff Pick n Pay Centre 13,936 Umlazi Mall 10,850 Kingsburgh Centre 9,514 Queensmead shopping centre - Umbilo 6,568 Seadoone Mall 6,023 DSM Mall 4,760 Centre 4,600 Isipingo Junction 4,531 Total 60,782

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Source: South African Council of Shopping Centres

There are various new developments under consideration in various Durban nodes. In the southern region examples include:

The Estuary in Amanzimtoti – located west of the Amanzimtoti CBD and proposed to have 35,000m² of retail space.

South Coast Mall located south-west of the N2 and R603 in the Kingsburg/Winkelspruit area and could have 82,500m² of retail space and 11,025m² of commercial space.

The Galleria at Arbour located at the N2 and Moss Klink intersection (currently a golf course) is proposed. It is envisioned to house a 20,000m² office park, 400 units of high-density housing, 200 units of low-density housing and a retirement village. The retail component would include a 75,000m² development incorporating a cinema and ice rink plus entertainment facilities.

There is also a new retail centre under construction at Umlazi, the Umlazi Mega City, which is a 28,000m² shopping centre anchored by a Super Spar and includes national tenants such as Jet, Mr Price and Ackermans.

The Durban property market remains dynamic and is in flux. Prime nodes have, and continue to develop in the western and northern nodes while newer nodes are also being built on the periphery of the CBD. These would include the Point Development and the Kingsmead node. Section 4 of the report will highlight some of the property indicators in these nodes.

4. PROPERTY MARKET INDICATORS

This section of the report highlights some of the property indicators for the different nodes in the eThekwini Municipality. Each geographical location is

2739/KG Page 32 Durban Property Market Review discussed separately namely - the Durban CBD, Inner West nodes, Outer West nodes, Northern nodes and the Southern nodes as described in Section 3.

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4.1 THE DURBAN CBD below R40/m² as illustrated in the graph below.

The Durban CBD, vacancy rates have in recent years Graph 7: Durban CBD - Gross Office Rentals hovered around the 20% level. It should be noted that R 60 these figures only reflect “A’ and “B” grade buildings. R 50

2 R 40 Graph 6: Durban CBD - Office Vacancy Rates

R/m R 30

35% R 20

30% R 10 25% 4:1 00:1 01:1 03:1 0 05:1 20% 0 2 20 2002:1 20 20 20 15% A+ A B C 10% 5% Source: Rode’s Report 0% Q1/90 Q1/92 Q Q Q1 Q Q Q1/04 1/94 1/96 1/00 1/02 /9 8 New office developments at the Point are expected to achieve rentals of about R75-R85/ m², with these rentals TOTAL GRADE A GRADE B

largely being reflective of building costs and expected Source: SAPOA, 2005:3 yields. In terms of the rental market, rentals are stable with A- grade rentals averaging between R50/m² and R55/m², For the retail market in the CBD, brokers report that however there are a few properties peaking just above rentals are achievable between R150/m²and R180/m². R60/m² and lower grades of property are achieving rentals

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Ethekwini Property Market Review

4.2 THE INNER WEST NODES Rentals in the node are on the upswing, reflecting strengthening demand. The market for office space in

The inner West office market is predominantly located these nodes peak between R70/m² and R 75/m2 for prime within the Berea node. Vacancy rates for this market are space. Average gross rentals for prime space in the node illustrated in the graph below. Generally vacancy rates are range between R55/m² to R65/m². tight at the 10% level suggesting a market in equilibrium. Although the graph shows a rising vacancy rates for prime Graph 9: Berea - Gross Office Rentals space, market brokers suggest that demand in the node is R 75 on the rise and that the node offers an appropriate balance R 65 between different commercial uses. 2 R 55

R/m R 45

Graph 8: Berea - Office Vacancy Rates R 35

R 25 25%

02:1 000:1 001:1 20% 2 2 20 2003:1 2004:1 2005:1

15% A+ A B C

10% Source: Rode’s Report

5%

0% In terms of the retail market, areas such as Musgrave Q1 Q Q Q1 Q1 Q Q1 Q1 1/92 1/94 1/00 /90 /96 /98 /02 /04 Centre are averaging a rental of R79/m², although the rental can be significantly higher for smaller, well-located TOTAL GRADE A GRADE B space. Source: SAPOA, 2005:3

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4.3 THE OUTER WEST NODES Gross rentals in Westville, peak at around R70/m² to R75/m², with new developments’ asking rentals reported Official market data suggest that A-grade vacancy rates between R75/m² to R85/m². rd weakened to 18% in the in the 3 quarter of 2005 compared to levels below 10% in 2004. Yet local brokers Graph 11: Westville - Gross Office Rentals report a reduction in vacancy rates in numerous buildings R 80 and new developments are being undertaken in the area - especially at Westway Office Park. R 70 2 R 60 Graph 10: Westville - Office Vacancy Rates R/m R 50

50% R 40

1 40% 5: 02:1 001:1 2000:1 2 20 2003:1 2004:1 200 30% A+ A B C 20% Source: Rode’s Report 10%

0% Q1/90 Q Q Q1/96 Q1/98 Q Q Q1/04 Sectional title office developments are also getting popular 1/92 1/94 1/00 1/02 in the nodes.

TOTAL GRADE A GRADE B

The industrial sector, has seen an increase in property Source: SAPOA, 2005 values as indicative in the following graphs.

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Graph 12: Pinetown - Gross Industrial Rentals Graph 13: Westmead - Gross Industrial Rentals

R 25 R 30

R 25 R 20 2 2 R 20 R/m

R 15 R/m R 15

R 10 R 10

1 1 1 1 1 1 05:1 05:3 : : : : : : 004:1 004:3 0 1 2 3 4 5 0 0 0 0 0 0 2000:12000:32001:12001:32002:12002:32003:12003:32 2 20 20 0 0 0 0 0 0 2 2 2 2 2 2 250 500 1,000 2,500 5,000 250 500 1,000 2,500 5,000

Source: Rode’s Report Source: Rode’s Report

Pinetown’s industrial market achieves peak gross rentals between R 20/m² to R25/m², rentals are generally twice the value they were five years ago, reflecting the boom in the industrial market. Similarly industrial nodes of New

Germany and Westmead are also reflecting peak rentals moving the closer to the R30/m² level, averaging R22/m² to R25/m², levels that have also having more than doubled in the past five years. Escalation rates on rentals are estimated around 8% and 9%. Brokers also report that gross rentals for new industrial space is around R35/m².

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Graph 14: New Germany – Gross Industrial Rentals Table 12: Outer West nodes: Industrial Land Values (Vacant Land) R 27 R 24 1,000m² 1,000m² 1,000m² 1000m² R 21 2 2 2 2

2 Pinetown R320/m R310/m R260/m R290/m R 18

R/m New R 15 R300/m2 R275/m2 R265/m2 R223/m2 R 12 Germany R 9 New :1 :3 :1 :3 :1 :3 :1 :3 :1 :3 :1 :3 0 0 1 1 2 2 3 3 4 4 5 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Westmead 2 2 2 2 2 2 2 2 2 2 2 2 R275/m2 R255/m2 R235/m2 R248/m2 250 500 1,000 2,500 5,000 /Mahogany

Ridge Source: Rode’s Report Source: Rode’s Report

Although rentals have strengthened in recent months, Table 12 suggests industrial land values are generally brokers report that industrial users tend to prefer buying being achieved between R200/m² and R350/m² in these industrial space than leasing space. areas, higher rentals are being achieved for newer

industrial nodes. In terms of industrial values for vacant land Rode’s report reports the following rates: Brokers report few sales for vacant space in the node,

mainly due to scarcity of industrial land in the nodes and

that land prices could be sitting closer to R400/m².

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4.4 THE NORTHERN NODES Graph 16: Umhlanga/La Lucia – Gross Office Rentals

From the late 1990’s the Umhlanga commercial node has R 85 been one of the fastest growing office nodes in South R 75 Africa. The latest SAPOA data as of the third quarter of 2 R 65 2005 indicates a slight weakening of lower office grade R/m R 55 vacancy rates. As discussed earlier in the report the R 45 Westville node offers competition to Umhlanga/La Lucia :1 01:1 05:1 000:1 nodes. 2 20 2002:1 2003 2004:1 20

A+ A B Graph 15: Umhlanga - Office Vacancy Rates Source: Rode’s Report 40%

30% Rentals in the node range between R58/m² to R75/m². Newer buildings are asking rentals around R80/m², which 20% are above current market norms. 10%

0% In the industrial market, established nodes such as Q Q Q Q Q Q Q Q Q 4/9 4/97 4/98 4/99 4 4/0 4/02 4/03 4/04 /00 6 1 Springfield Park and Umgeni, continue to be some of the prime nodes in eThekwini. Gross industrial rentals peak at TOTAL GRADE A GRADE B some R25/m² to R30/m². Other nodes such as Briardene Source: SAPOA, 2005:3 and Mount Edgecombe are realizing similar rentals and in

the case of newer developments rentals exceed R

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30.00/sqm. Graph 18: Umgeni - Gross Industrial Rentals

R 40 Graph 17: Springfield Park - Gross Industrial Rentals R 35

R 30 2 R 30

R 25 R/m R 25

2 R 20 R 20

R/m R 15 R 15

002:1 003:1 004:3 005:3 2001:3 2 2002:3 2 2003:3 2004:1 2 2005:1 2 R 10 250 500 1,000 2,500 5,000

001:1 001:3 003:1 003:3 005:1 005:3 2000:1 2000:32 2 2002:1 2002:32 2 2004:1 2004:32 2 Source: Rode’s Report 250 500 1,000 2,500 5,000

Source: Rode’s Report Vacant industrial lands in these nodes are averaging around R300/m² and higher.

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Table 13: Northern Nodes: Industrial Land Values Graph 19: Umbilo - Gross Industrial Rentals (Vacant Land) R 30 1,000m² 1,000m² 1,000m² 1000m² R 25 North Coast 2 2 2 2 R283/m R283/m R283/m R315/m 2 R 20 Road/Briardene

R/m R 15 Springfield Park R333/m2 R333/m2 R358/m2 R358/m2 R 10 Mount R368/m2 R304/m2 R329/m2 R322/m2 R 5 Edgecombe :1 :3 3 :1 :3 :1 1 :3 :1 :3 0 2 2 4 00 01:1 03 03:3 05 05 00 0 0 00 00 0 0 00 0 0 Source: Rode’s Report 2 2 2 2001: 2 2 2 2 2004: 2 2 2

250 500 1,000 2,500 5,000

4.5 THE SOUTHERN NODES Source: Rode’s Report

Although no official market data exists for office space in Graph 20: Umbongintwini - Gross Industrial Rentals these nodes of the municipality, practitioners suggest that R 35 the office market averages between R30/m² to R70/m². R 30 The lower figure primarily refers to lower grade of office R 25 2 space. R 20 R/m R 15 R 10 Rentals in the industrial sector are depicted below. The R 5 relevant graphs indicate industrial rentals between R25/m² :2 :3 :4 :1 :2 :3 :4 :1 :2 :3 :4 3 3 3 4 4 4 4 5 5 5 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 and R30/m². Higher rentals achievable in this market are 2 2 2 20 20 20 20 20 20 20 20 250 500 1,000 2,500 5,000 for mini factories and here rentals range between R28/m² and R30/m². Source: Rode’s Report

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Graph 21: Jacobs - Gross Industrial Rentals than for instance in the west, but that probably is a reflection of the type of space rather than the quality of the R 30 space. Land values in the node are still relatively high R 25 peaking at some R300/m².

2 R 20

R/m R 15 In general, property indicators for Durban show an R 10 increase in property value and rentals although it can be R 5 argued that this performance does vary from one node to :1 :3 :1 :3 :1 :3 :1 :3 :3 2 3 3 00 01 01 02 000 2 20 20 20 20 200 200 200 2004:12004:32005:12005 the next.

250 500 1,000 2,500 5,000

Source: Rode’s Report

Table 14: Southern Nodes: Industrial Land Values (Vacant Land) 1,000m² 1,000m² 1,000m² 1000m² Umbilo R263/m2 R263/m2 R263/m2 R263/m2 Jacobs R306/m2 R306/m2 R263/m2 R263/m2 Mobeni/ R263/m2 R263/m2 R263/m2 R263/m2 Prospecton Source: Rode’s Report

Industrial values in the South tend to be somewhat lower

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5. INVESTMENT INCENTIVES AND URBAN REGENERATION

In South Africa the public sector, through its numerous policies, plays an important role in influencing investment and economic growth of the city. Policies applied by the eThekwini municipality are based on a Long Term Development Framework, and related spatial development frameworks.

This process has identified a hierarchy of existing and potential development nodes. The major hierarchy nodes are situated along the High Priority Transportation Networks and include the Durban CBD, the South Durban Basin, the Beachfront, the Point and Umhlanga. The core nodes also comprise supportive periphery nodes that are also recognised as important development and investment opportunities. Reinforcement nodes are also identified which support the above-mentioned core/high priority investments and these include the King Shaka International Airport, Verulam and Amazimtoti. Regeneration is also envisioned for areas such as the CBD, Pinetown, Verulam, Amazimtoti.

The intention of the report is not to exhaustively discuss the Spatial Development Framework(s) but it must be underlined that the city invariably encourages investment in areas that would give investors the required returns, and which are required to meet socio-economic objectives.

Short-term Spatial Development Plans (five-year development visions) are presently being prepared for the central, northern, western and southern development regions of the municipality. These focus on potential development trends supporting the various sectors of the economy and related property developments.

The focus is also on Tourism related opportunities. The KZN tourism authority has put together an investment guideline entitled “ The Developer’s Guide to investing in Tourism Projects in Kwazulu-Natal. In this document potential investors are provided with introduction to economic sectors, the procedure to

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Ethekwini Property Market Review land development applications, introduction to major role players who would help investors in starting up and doing business in this sector of the economy.

The importance lies in investors familiarising themselves with city-wide development policies and development strategies that support property investment in Durban.

5.1 REGENERATION PROJECTS

The Inner eThekwini Regeneration and Urban Management Programme (iTRUMP) is tasked with facilitating urban regeneration programmes for the Durban property market.

Major flagship projects that have been part of urban regeneration programmes include:

The development of the uShaka Marine Theme Park, which has led to encouraging private investment of development of the Point which will be discussed;

The development of the Sun Coast Casino located in the northern nodes;

The Warwick Junction – a transport and trading business node. The project successfully relocated traders to a more sheltered area with supportive amenities within the same vicinity. The original trading hub was in turn upgraded and better managed and prevented further informal trading that was not conducive to the environment;

Formalising the informal trading on West Street which in turn removed on street trading that was competing with traffic flow;

Revamping the beachfront from uShaka Marine Theme Park to Umgeni river;

Regeneration of the inner city residential areas – which is also supported by private sector investment; and

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The development of the Kings Park district to create an international sports precinct a trend already anticipated by major cities in South Africa in anticipation of important sporting event such as the 2010 Soccer World Cup.

As discussed earlier in this report, such initiatives have a critical role to play in creating new opportunities in the market for developers, tenants and investors.

5.2 THE POINT WATERFRONT

The development of the Point Waterfront is worth mentioning to illustrate how regeneration initiatives encourage private sector investment. These investments are leading to an urban regeneration of the Point area.

The Point Waterfont development is becoming one of Durban's most prestigious locations, and is a vibrant tourist destination. The area’s first major development was the uShaka Marine Theme Park. This has lead to further investment in high-rise luxury apartments and commercial space. Together, this has created a high-income mixed-use environment in close proximity to the CBD.

Some 2,000 apartments are expected to be developed. The first completed apartment, the Quays, was launched at the end of March 2006. It is a 10-storey apartment block that also has a separate boutique hotel. Heritage Square and East Point have also been recently been completed.

Offices developments ranging from sectional title or rented space are also coming onto the market.

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5.3 THE DURBAN INVESTMENT PROMOTION AGENCY

The Durban Investment Promotion Agency (DIPA) is facilitating property investment projects in the city. DIPA is a partnership initiative, reflecting a joint effort between the municipality and private sector interests. DIPA offers an investor advisory and facilitation services and its tasks range from offering networking opportunities to potential investors and facilitating the unlocking of potential land for development where possible. This has meant providing information and market analysis as well as assisting business operations in the identification of investment opportunities. Added to this, the Agency markets Durban as an investment opportunity area for local and foreign investors.

Major projects supported by DIPA, which include:

Development of community nodes. This includes the creation of an economic environment that stimulates job creation. But more specifically it means ensuring that communities have accessibility to community amenities. This is targeted for example at communities in KwaMashu, Umlazi, Isipingo, Clermont, and Pinetown;

Development of the Kings Park precinct;

The assessment of the Ocean interface with the city. This means focussing on key tourism opportunities;

The development of the ICC Arena.

DIPA has also allocated budgets to undertake projects around the Urban Developments Zones (UDZ’s), 2010 Soccer World Cup, Africa Square, Kings Park, the Beachfront and Bridge City and new investment nodes for Inanda, , Kwa Mashu, Phoenix and surrounding areas.

The overall objective of DIPA is therefore to ensure that property and economic development is broad based across the municipality. This requires policy to focus

2739/KG Page 46 2006/06/06 Ethekwini Property Market Review both on successful development nodes as well as encouraging development in areas that have previously been neglected.

5.4 THE URBAN DEVELOPMENT ZONE

In 2003 the National government introduced Urban Development Zones (UDZ’s) in numerous South African cities. Existing UDZ’s tend to be focussed around areas that are predominantly characterised by urban decay - especially in Central Business Districts. The eThekwini Municipality was one of the first cities to demarcate a UDZ.

The Income Tax Act (58 of 1962) of 2003 permits owners/developers to depreciate in an accelerated manner capital expenditure undertaken in a UDZ. This occurred through an amendment of the Income Tax Act

The UDZ tax incentives therefore encourage capital expenditure designated areas. In eThekwini the boundaries for the UDZ are Bell Street in the south through to Shepstone Road, Victoria Embankment, Alexandra Street, Berea Road, Carters Avenue, Canongate Road, Warwick Avenue, Centenary Road, Carlisle Road, First Avenue, Stamford Hill Road, Croydon Road, Walter Gilbert Road, Cobham Road, Old Fort Road, NMR Avenue, Somtseu Avenue, Stanger Street, Argyle Road, NMR Avenue and Walter Gilbert Road in the north. The total area of the UDZ amounts to approximately 670ha of developed land that would benefit from this initiative. The UDZ is illustrated in the Map 2 below.

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Map 2: The Urban Development Zone

There is growing evidence that investors are seriously considering the attractiveness of such incentives, and may well be one of the reasons that major corporate investments are being undertaken in the Durban CBD. The challenge also lies in ensuring that investors take this opportunity to improve the condition of existing buildings through appropriate renovations.

6. CONCLUDING REMARKS

The Durban property market is benefiting from strong fundamentals in the South African macro-economy as well as improved conditions in the property market itself. From a national perspective, the 2005, investment returns provided by the Investment property databank are the highest seen since 1995. This has been driven by declining vacancy rates, rising rentals and the strengthening of capitalization rates.

From a micro locational perspective, the performance of the property market, from a metropolitan perspective, varies from node to the next. In recent years, the property market has dispersed throughout the municipality with new nodes

2739/KG Page 48 2006/06/06 Ethekwini Property Market Review in the north and west showing considerable growth. While this has sometimes been at the cost of the CBD, successful urban regeneration programmes have once again provided the basis for investors carefully looking at older areas.

In the CBD increased tenant and investor demand is coming from smaller tenants and private investors. The CBD also continues to provide a critical retail node for shoppers from lower income areas who rely on public transport.

Initiatives such as the development of the Kingsmead node and the point development are also providing important anchors for the CBD. With time, this will ensure that the CBD provides a built environment that serves the commercial as well as residential sectors for different income groups.

The future economic growth of the municipality will also require that an appropriate balance is found between residential and commercial space. It will be particularly important that appropriate industrial space is brought to the market to underpin the economy. This will require the regeneration of older industrial nodes (for instance bringing new land to the market in the South Durban Basin). This could include land made available through the move of the airport, to the market. Similarly the growth of the port will increase the demand for land in the medium term.

The future of the eThekiwni economy and built environment will also require the economic development of disadvantaged communities. This will require a combination of appropriate public sector interventions as well as the creation of an investment climate that encourages private investment in areas not previously considered by investors.

Although the strength of the local economy will continue to offer significant opportunities in the built environment, the challenge lies in ensuring that such opportunities are provided across the municipal economy and isn’t confined to certain nodes.

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7. REFERENCES AND NOTES

ABSA, 2005, Absa Residential Price Index

Bureau of Economic Research (BER), 2005

EThekwini Municipality, 2005, IPD Review 2005/2006 (The Draft)

EThekwini Municipality, eThEkwini upper south retail and office assessment

Economic Development Unit, 2006, Economic Data.

Investment Property Databank. 2006. SAPIX/IPD Index.

Rode and Associates. 2005:4. Rode’s Report on the South African Property Market, Vol 18. No 2.

SAMCO: 2005. The Samco Report 2005/2006 in association with SAPOA.

SAPOA. Office Vacancy Survey 2005

Vancometrics, 2004, Outer West Economic Development Strategy

Vancometrics, eThekwini northern area – Economic analysis and pointers towards a development strategy.

Viruly Consulting, 2005, Property market analysis of the southern municipal planning region of eThekwini.

Secondary data, site visits and interviews – contributions from SAPOA vacancy Survey committee facilitated by Beverly Ann fink of Broll, Bernice Faure, Steven Reddy, Judith Guthrie, Ithala, Old Mutual Properties, Morelands, JHI, Hannes Potgieter – Alliance, Maxprop, Keith Wilson – Mindry Rasmussen, eProp, KZN Tourism Authority, iTRUMP, The Point precinct, eThekwini Municipality, Economic development Unit, Durban Investment Promotions Agency.

Disclaimer: While the utmost care has been taken to ensure the validity of the information and opinions contained herein, the eThekwini Municipality does not accept any

responsibility for investment decisions based thereon.

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