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 DURBAN 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 Umlazi 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: