1 draft MARKET ANALYSIS OF BALFOUR PARK WITHIN THE CONTEXT OF THE LOUIS BOTHA CORRIDOR OF FREEDOM Prepared by Viruly Consulting For CoJ Suite 38 P Bag X26 Tokai 7966 021 671 4223 [email protected] Whilst all care will be been taken in the preparation of documents and deliverables, Viruly Consulting (Pty) Limited does not assume responsibility for any error, omission or opinion expressed as well as decisions based on the information provided. 0249/15 VC BALFOUR PARK contextual – market analysis 2 TABLE OF CONTENTS 1 Objective and Approach of the Report 3 2 Introduction 4 2.1 Mega/Macro Market Trends 4 2.2 Movements that are shaping and will shape the future 6 2.3 The Metropolitan Analysis 7 2.4 The Socio Economic Considerations of the Study Area 10 2.4.1 Demographics 10 2.4.2 The Economic profile 12 3 The Highlands North/ Balfour Park and Property Market 13 3.1 The Residential Property Market 13 3.2 The Retail Property Market 15 3.3 The Office Property Market 18 3.4 The Industrial Property Market 19 4 Future Demand Forecasts 21 4.1 The Residential Sector 21 4.2 The Retail Sector 22 4.3 The Office and Industrial Sectors 22 5 Some Thoughts on Value Capture and Transport Infrastructure 22 6 SWOT Analysis 24 7 References and Annexure 25 GLOSSARY CBD Central Business District CoJ City of Johannesburg GLA Gross Lettable Area LSM Living Standards Measure LEPA Local Economic and Property Assessment NMT Non-Motorised Transport RR Rode Report SAFLBADCP Strategic Area Framework Louis Botha Avenue Development Corridor Plan (shortened to CoJ SAF) SAPOA South African Property Owners Association SPTN Strategic Public Transport Network Stats SA Statistics South Africa STEEP Social, Technological, Economic, Environmental and Political SWOT Strength, Weaknesses, Opportunities, and Threats TOD Transport Oriented Developments 0249/15 VC BALFOUR PARK contextual – market analysis 3 1. OBJECTIVE AND APPROACH OF THE REPORT The primary objective of this project is to assess the economic and property market conditions in the study are namely the Balfour Park study area (Ward 74). Equal consideration is given to the potential impact that the Corridor of Freedom, running North - South along Louis Botha Avenue, (integrated transport/land use plan) could have on the future development potential of the study area. The analysis comprises two important steps. These are the Market Study and the Marketability Study. See Figure 1 bel ANALYSIS STRUCTURE 1.PROPERTY MARKET STUDY Macro economy 1.1 MEGA/MACRO TRENDS Property Cycle STEEP Economic linkages Access 1.2 METROPOLITAN IDP/SDF All relevant documentation; other reports etc. Access 1.3 SUBURB LEVEL / STUDY AREA Catchment Area Analysis Demographics DATA (census) Economics SOCIO-ECONOMIC Sociology of the area DATA Business survey PRIMARY Retail BUSINESS AND ECONOMIC BASE OF THE STUDY SURVEY Office AREA Industrial Residential DEMAND FOR SPACE Quantum Type CONTEXTUAL ANALYSIS The players Building Plans SUPPLY OF SPACE passed and Quantum completed Type MARKETS OUTCOME PROPERTY MARKET ANALYSIS Vacancies Take-up rates Rentals Property values sales Property values valuation roll 2. MARKETABLITY STUDY 3. SWOT ANALYSIS and RECCOMMENDATIONS Figure 1. Methodology of Market Analysis 0249/15 VC BALFOUR PARK contextual – market analysis 4 The analysis follows a top-down approach which flows from mega trends, which affect the entire South African and Johannesburg property markets, to specific drivers that drive The property market in the study area; The Mega/Macro trends analyses the South Africa and Gauteng’s Local, Economic and Property Assessment (LEPA) which is based on a Social, Technological, Economic, Environmental and Political (STEEP) trends’ approach. The Metropolitan analysis includes all relevant documentation including the RSDF of Region E of which the study area (Ward 74) is part of and also recent studies such as the Strategic Area Framework for the Louis Botha Avenue Development Corridor, Balfour Park being classified as Area 5. The Suburb Level/Study Area concentrates on all socio-economic aspects and property market analysis. This includes all data from the Census 2011 data bank; from demographics to type of dwelling and disposable annual income. • Data from business surveys and interviews with brokers supply a current understanding of the business and economic base of the study area. • This also includes analysis of the demand and supply of space and the market outcomes which are derived by analysing the SAPOA office vacancy rates and rentals from Rode Report. • The suburbs include Bramley, Glenhazel, Gresswold, Highlands North, and Highlands North Extensions 2, 3, 4, and 9, Kew, Savoy Estate and Waverley. • Further data was sourced or extrapolated from existing sources when necessary, for example the internet. The Marketability Study weighs all the relevant data and is also reliant on data collected from previous reports. In turn, this economic and property assessment informs a SWOT (Strength, Weaknesses, Opportunities, and Threats) analysis which attempts to identify market opportunities and threats taking cognisance of the existing strengths and weaknesses of the node. 2. INTRODUCTION 2.1 MEGA/MACRO MARKET TRENDS Property markets are influenced by long as well as short term dynamics. Long term dynamics are influenced by demographic and economic transitions, as well as technological changes. In the shorter to medium term construction and investment property cycles, including investment activity, are influenced by general economic cycles, although often with a slight lag. This is due predominantly to increased economic and capital market integration, as modern property cycles display a strong interdependence between property, finance, the macro economy, and socio-economic impacts. Investment activity is also closely associated with investor confidence at both a national and local level, including the quality of infrastructure and the strength of legal and market institutions. Although property 0249/15 VC BALFOUR PARK contextual – market analysis 5 markets are primarily driven by private sector investment decision making, the public sector influences these markets through infrastructural and policy interventions. An analysis of market fundamentals suggests that conditions are generally improving in the South African commercial property market. The market is however still adjusting from the property boom experienced between 2004 and 2008, which resulted in an oversupply of space particularly in the office market and higher end residential space. The rise in annual building costs exceeded 20% in 2005, while the subsequent slowdown in development activity since 2008 caused building cost increases to better reflect national inflation levels. In terms of building plans passed, the boom in non-residential space started after that in the residential market. More specifically, the low-cost housing boom began around 1995, while other residential units escalated in 1999/2000, and non-residential space only picked up around 2001/2002. Building plans passed began declining from mid 2007; however by 2011 development activity in the retail and industrial sectors appeared to have strengthened. This suggests that investors are possibly taking a view that fundamentals will improve by 2015/16 when properties presently being planned would enter the market. MARKET MARKET EXPANSION CONTRACTIO N Ret urn RECOVERY s & Sup ply Returns Supply& RECESSION RECESSION 2000-2002 2003-2005 2006-2008 2009-2010 2011 - Time Figure 2. Stages of the South African property cycle The property cycle of the Johannesburg/Gauteng commercial property market is illustrated in Graph 1. It illustrates the strong downturn that occurred in the property market in 2007, with the market showing a rebound in 2012. The South African property cycle seems to experience long run construction cycles that are some twenty years in duration, with property investment cycles being some ten years in duration. 0249/15 VC BALFOUR PARK contextual – market analysis 6 % Sectoral Return Gauteng 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 All retail Gauteng All office Gauteng All industrial Gauteng Graph 1. Depicting Total returns across Gauteng (IPD) The correct timing of public sector interventions in the built environment can have a profound impact on the success of such interventions. In a downturn of the economic and property cycles, the response of the private sector to public sector interventions can be weak. The above analysis suggests that the property cycle is presently moving upwards suggesting growing investor confidence. 2.2 MOVEMENTS THAT ARE SHAPING THE MARKET The Balfour Park study area is located just off the North-South main arterial Louis Botha Avenue and is being affected by numerous broad trends which include; A rapidly rising urban population with large metropolitan areas experiencing a growth of 2%-4% per annum; Some competition for land between residential and commercial uses. Higher densities in the residential market make it increasingly possible for this sector to compete against opportunities in the commercial property sector. A significant gap between the demand and supply of affordable housing units. Recent evidence suggests that the gap between supply and demand continues to place significant upward pressure on the value of property values, thereby reducing affordability. The decentralisation of commercial uses from the inner city. Large South African