Rentals continue to rise as businesses flock to Sandton

Published Mar 20, 2014

Share

Sandton is still a powerhouse of growth for the commercial property sector.

Ken Reynolds, the Gauteng regional executive of Nedbank Corporate Property Finance, said the corporate migration to central Sandton showed no signs of slowing and the concentrated wealth and existing facilities in the node were still attracting massive investment from major corporates looking to establish their offices at the heart of sub-Saharan African trade.

Reynolds said the area currently accounted for more than 60 percent of all of South Africa’s new construction and development, as well as a large chunk of the country’s redevelopment and refurbishment activity.

“Sandton is now the recognised business hub of South Africa, and indeed sub-Saharan Africa. The concentration of office space in the central business node is substantial and we are seeing rentals on A-grade commercial space spiking.

“Rentals are now creeping towards R200 a square metre where only a few years ago they were in the R120 a square metre range.

“B- and C-grade office blocks are now being gutted and redeveloped, or being demolished, as enterprises seek increasingly high quality facilities,” he said.

Reynolds said Nedbank Corporate Property Finance was the market leader in the South African commercial property finance industry and was underpinning much of this development, with several financing agreements running to billions of rand for the development of new corporate buildings in central Sandton in recent years.

“With new long-term commitments to the area from major financial houses and corporates, including Discovery, Webber Wentzel, Alexander Forbes, Ernst & Young and Sasol, we expect commercial development in central Sandton to continue,” he said.

Nedbank recently won the funding for the 80 000m2 Discovery head office to be built in central Sandton by Zenprop and Growthpoint Properties at a cost of around R2.5 billion and has providing funding of R840 million for the new Alexander Forbes head office, also on behalf of Zenprop.

Reynolds added that the available inventory in central Sandton had not been depleted and some developers were holding substantial development rights as the commercial migration gained momentum.

He said that while there was no question that all key players would want a presence in central Sandton, what was in question was how the node would accommodate the influx of employees.

“The question of whether there is sufficient infrastructure to accommodate these developments has sparked ongoing debate. The short answer is ‘no’.

“It is relatively easy to keep increasing the power, water and sewer lines, but the roads situation is a challenge – you cannot keep widening the roads.

“The solution lies in more efficient public transport services, such as the Gautrain, helping to ease roads congestion. If this becomes available, Sandton may develop along the lines of New York’s Manhattan, where the majority of properties are commercial developments and employees commute from other suburbs.

“There will likely also be an increase in the number of high-rise residential developments, whether the public transport infrastructure is improved or not. Because of traffic congestion and the pure convenience of being close to work, people want to move to the area.

“Those based abroad or elsewhere in South Africa want a base when they are in Sandton for business purposes. We expect to see more quality, high-rise residential development taking place to meet this need,” he said.

Reynolds said some retail growth in Sandton was also possible although it was unlikely there would be further retail developments on the scale of Sandton City, which attracts shoppers from all over Africa and had over 24 million visitors last year.

However, there might still be opportunities for convenience type retail developments in central Sandton, he said.

Reynolds said one stumbling block in the way of central Sandton’s phenomenal growth was the exorbitant rates and taxes in the business node.

“The rates and taxes are probably among the highest in the country. Added to this is the cost of rezoning and services to developers,” he said.

Reynolds conceded that at some point the cost of doing business from a Sandton base could spiral out of control, forcing companies to either downscale their presence in central Sandton or to crowd more staff into less space.

He said there was no doubt that central Sandton was growing and would continue to grow in the foreseeable future but drew on comparisons between the Sandton central business district and the Johannesburg CBD.

“What led to the previous decline of the Johannesburg CBD was a lack of public transport and parking. Sandton has sufficient parking but it lacks public transport. If anything kills it in the long term, it will be the public transport issue,” he said.

Related Topics: