Ethekwini report 06-6-2006...Ethekwini Property Market Review 2739/KG CONTENTS PAGE NO.: EXECUTIVE SUMMARY 1 1. INTRODUCTION 3 1.1 THE BRIEF 3 1.2 REPORT STRUCTURE 4 2. THE SOUTH AFRICAN

DURBAN

PROPERTY MARKET REVIEW

2006/2007

ETHEKWINI MUNICIPALITY

ECONOMIC DEVELOPMENT UNIT

Viruly Consulting (Pty) Limited Registration Number: 99/15100/07

Director: F M Viruly (Dutch

DDOOCCUUMMEENNTT PPRREEPPAARREEDD BBYY::

Viruly Consulting (Pty) Ltd

Contribution from Ramesh Amrit (Letchimah Daya

Mandindi)

LDM PROPERTY RESEARCHA Division of LETCHMIAH ⏐ DAYA ⏐ MANDINDI

Ethekwini Property Market Review

2739/KG

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

Durban Property Market Review

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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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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:

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

The SA PropertyMarket

Lifestyle –‘Home, work and play’

Mixed-use developmentsNeighbourhood developments

Specialized retailing

Transport -Pressure with

Higher economic growth

Traffic congestion“ A housing issue”

Motorized/ Non Motorized

Macro Economy –Low Inflation environment

Interest rates stableEconomic growth

Business confidence

Social & PoliticalUrban regeneration

Housing & EnvironmentProperty Charter

Foreign OwnershipLand Restitution

PPP’sInvestment incentives


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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 Mount Edgecombe. 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 Amanzimtoti 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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interest.

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

0

50,000

100,000

150,000

200,000

250,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

m2

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)

0

10000

20000

30000

40000

50000

60000

70000

80000

2003 2004 2005

SQM Office and Banking Space (m²)

Shopping Space (m²)Industrial Space (m²)

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

-5

0

5

10

15

20

25

Q1/93

Q1/94

Q1/95

Q1/96

Q1/97

Q1/98

Q1/99

Q1/00

Q1/01

Q1/02

Q1/03

Q1/04

Q1/05

% C

ha

ng

e

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 South Africa‘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 N2 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 0

R 20,000,000

R 40,000,000

R 60,000,000

R 80,000,000

R 100,000,000

R 120,000,000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

Rm

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%

29%

3%

12%15%

19%

2%

20%

Mining Manufacturing Electricityconstruction Trade TransportFinance 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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later sections of the report.

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


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far western commercial nodes established around Westville and Pinetown, 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

Inner West nodes Berea, Musgrave and other closely

located commercial nodes.

Outer West node

Westville, Pinetown, and industrial

nodes such as New Germany, West

and Mahogany Ridge.

Northern nodes

Umhlanga/La Lucia Ridge. Mount

Edgecombe, Briardine, Springfield

Park, Riverhorse Valley Business

Estate.

Southern nodes

Amanzimtoti, South Durban Basin,

and other associated commercial

nodes.


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33..22..11 TTHHEE DDUURRBBAANN CCBBDD

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


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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.

33..22..22 TTHHEE IINNNNEERR WWEESSTT NNOODDEESS

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.


2739/KG Page 22

33..22..33 TTHHEE OOUUTTEERR WWEESSTT NNOODDEESS

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.


2739/KG Page 23

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 24

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.

33..22..44 TTHHEE NNOORRTTHHEERRNN NNOODDEESS

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.


2739/KG Page 25

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.


2739/KG Page 26

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.

33..22..55 TTHHEE SSOOUUTTHHEERRNN NNOODDEESS

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 27

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 Prospecton, Isipingo and Umbogintwini.

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 La Mercy, 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 28

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;


2739/KG Page 29

Table 5: Size of the Office Market in m²

Type of

Space Durban CBD Berea Westville

Uhlanga/La

Lucia

P-grade 4,706

A-grade 114,038 31,596 30,365 141,683

B-grade

363,947 42,736 79,064 22,932

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

Durban

CBD

Inner

west

nodes

Outer

west

nodes

Northern

nodes

Southern

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.


2739/KG Page 30

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


Musgrave centre 32,122

Berea Centre 17,760

The Glenwood Village 5,956


Table 9: Outer west Nodes Shopping Centres


The Pavillion - Westville 100,000

Sanlam Centre - Pinetown 38,980

Knowles Centre - Pinetown 15,038

The Village Market 11,158

Fields shopping centre - Kloof 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


2739/KG Page 31


Hillcrest Centre 4,713

The Colony - Hillcrest 4,000

Hillgate Centre - Hillcrest 3,500


Table 10: Northern Nodes Shopping Centres


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


Table 11: Southern Nodes Shopping Centres


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

Athlone Park Centre 4,600

Isipingo Junction 4,531

Total 60,782


2739/KG Page 32

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 33

discussed separately namely - the Durban CBD, Inner West nodes, Outer West

nodes, Northern nodes and the Southern nodes as described in Section 3.


2739/KG Page 34 2006/06/06

4.1 THE DURBAN CBD

The Durban CBD, vacancy rates have in recent years

hovered around the 20% level. It should be noted that

these figures only reflect “A’ and “B” grade buildings.

Graph 6: Durban CBD - Office Vacancy Rates

0%

5%

10%

15%

20%

25%

30%

35%

Q1/90

Q1/92

Q1/94

Q1/96

Q1/98

Q1/00

Q1/02

Q1/04

TOTAL GRADE A GRADE B

Source: SAPOA, 2005:3

In terms of the rental market, rentals are stable with A-

grade rentals averaging between R50/m² and R55/m²,

however there are a few properties peaking just above

R60/m² and lower grades of property are achieving rentals

below R40/m² as illustrated in the graph below.

Graph 7: Durban CBD - Gross Office Rentals

R 10

R 20

R 30

R 40

R 50

R 60

2000

:1

2001

:1

2002

:1

2003

:1

2004

:1

2005

:1

R/

m2

A+ A B C

Source: Rode’s Report

New office developments at the Point are expected to

achieve rentals of about R75-R85/ m², with these rentals

largely being reflective of building costs and expected

yields.

For the retail market in the CBD, brokers report that

rentals are achievable between R150/m²and R180/m².


2739/KG Page 35 2006/06/06

4.2 THE INNER WEST NODES The inner West office market is predominantly located

within the Berea node. Vacancy rates for this market are

illustrated in the graph below. Generally vacancy rates are

tight at the 10% level suggesting a market in equilibrium.

Although the graph shows a rising vacancy rates for prime

space, market brokers suggest that demand in the node is

on the rise and that the node offers an appropriate balance

between different commercial uses.

Graph 8: Berea - Office Vacancy Rates

0%

5%

10%

15%

20%

25%

Q1/90

Q1/92

Q1/94

Q1/96

Q1/98

Q1/00

Q1/02

Q1/04



Rentals in the node are on the upswing, reflecting

strengthening demand. The market for office space in

these nodes peak between R70/m² and R 75/m2 for prime

space. Average gross rentals for prime space in the node

range between R55/m² to R65/m².

Graph 9: Berea - Gross Office Rentals

R 25

R 35

R 45

R 55

R 65

R 75

2000

:1

2001

:1

2002

:1

2003

:1

2004

:1

2005

:1

R/

m2

A+ A B C


In terms of the retail market, areas such as Musgrave

Centre are averaging a rental of R79/m², although the

rental can be significantly higher for smaller, well-located

space.


2739/KG Page 36 2006/06/06

4.3 THE OUTER WEST NODES

Official market data suggest that A-grade vacancy rates

weakened to 18% in the in the 3rd quarter of 2005

compared to levels below 10% in 2004. Yet local brokers

report a reduction in vacancy rates in numerous buildings

and new developments are being undertaken in the area -

especially at Westway Office Park.

Graph 10: Westville - Office Vacancy Rates

0%

10%

20%

30%

40%

50%

Q1/90

Q1/92

Q1/94

Q1/96

Q1/98

Q1/00

Q1/02

Q1/04


Source: SAPOA, 2005

Gross rentals in Westville, peak at around R70/m² to

R75/m², with new developments’ asking rentals reported

between R75/m² to R85/m².

Graph 11: Westville - Gross Office Rentals

R 40

R 50

R 60

R 70

R 80

2000

:1

2001

:1

2002

:1

2003

:1

2004

:1

2005

:1

R/

m2

A+ A B C


Sectional title office developments are also getting popular

in the nodes.

The industrial sector, has seen an increase in property

values as indicative in the following graphs.


2739/KG Page 37 2006/06/06

Graph 12: Pinetown - Gross Industrial Rentals

R 10

R 15

R 20

R 25

2000

:120

00:3

2001

:120

01:3

2002

:120

02:3

2003

:120

03:3

2004

:120

04:3

2005

:120

05:3

R/

m2

250 500 1,000 2,500 5,000


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.

Graph 13: Westmead - Gross Industrial Rentals

R 10

R 15

R 20

R 25

R 30

2000

:1

2001

:1

2002

:1

2003

:1

2004

:1

2005

:1

R/

m2

250 500 1,000 2,500 5,000



2739/KG Page 38 2006/06/06

Graph 14: New Germany – Gross Industrial Rentals

R 9

R 12

R 15

R 18

R 21

R 24

R 27

2000

:120

00:3

2001

:120

01:3

2002

:120

02:3

2003

:120

03:3

2004

:120

04:3

2005

:120

05:3

R/

m2

250 500 1,000 2,500 5,000


Although rentals have strengthened in recent months,

brokers report that industrial users tend to prefer buying

industrial space than leasing space.

In terms of industrial values for vacant land Rode’s report

reports the following rates:

Table 12: Outer West nodes: Industrial Land Values

(Vacant Land)

1,000m² 1,000m² 1,000m² 1000m²

Pinetown R320/m2 R310/m2 R260/m2 R290/m2

New

Germany R300/m2 R275/m2 R265/m2 R223/m2

New

Westmead

/Mahogany

Ridge

R275/m2 R255/m2 R235/m2 R248/m2


Table 12 suggests industrial land values are generally

being achieved between R200/m² and R350/m² in these

areas, higher rentals are being achieved for newer

industrial nodes.

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.


2739/KG Page 39 2006/06/06

4.4 THE NORTHERN NODES

From the late 1990’s the Umhlanga commercial node has

been one of the fastest growing office nodes in South

Africa. The latest SAPOA data as of the third quarter of

2005 indicates a slight weakening of lower office grade

vacancy rates. As discussed earlier in the report the

Westville node offers competition to Umhlanga/La Lucia

nodes.

Graph 15: Umhlanga - Office Vacancy Rates

0%

10%

20%

30%

40%

Q4/96Q4/97Q4/98

Q4/99Q4/00

Q4/01Q4/02

Q4/03Q4/04



Graph 16: Umhlanga/La Lucia – Gross Office Rentals

R 45

R 55

R 65

R 75

R 85

2000

:1

2001

:1

2002

:1

2003

:1

2004

:1

2005

:1

R/

m2

A+ A B


Rentals in the node range between R58/m² to R75/m².

Newer buildings are asking rentals around R80/m², which

are above current market norms.

In the industrial market, established nodes such as

Springfield Park and Umgeni, continue to be some of the

prime nodes in eThekwini. Gross industrial rentals peak at

some R25/m² to R30/m². Other nodes such as Briardene

and Mount Edgecombe are realizing similar rentals and in

the case of newer developments rentals exceed R


2739/KG Page 40 2006/06/06

30.00/sqm.

Graph 17: Springfield Park - Gross Industrial Rentals

R 10

R 15

R 20

R 25

R 30

2000

:120

00:3

2001

:120

01:3

2002

:120

02:3

2003

:120

03:3

2004

:120

04:3

2005

:120

05:3

R/

m2

250 500 1,000 2,500 5,000


Graph 18: Umgeni - Gross Industrial Rentals

R 15

R 20

R 25

R 30

R 35

R 40

2001

:3

2002

:1

2002

:3

2003

:1

2003

:320

04:1

2004

:3

2005

:1

2005

:3

R/

m2

250 500 1,000 2,500 5,000


Vacant industrial lands in these nodes are averaging

around R300/m² and higher.


2739/KG Page 41 2006/06/06

Table 13: Northern Nodes: Industrial Land Values

(Vacant Land)

1,000m² 1,000m² 1,000m² 1000m²

North Coast

Road/Briardene R283/m2 R283/m2 R283/m2 R315/m2

Springfield Park R333/m2 R333/m2 R358/m2 R358/m2

Mount

Edgecombe R368/m2 R304/m2 R329/m2 R322/m2


4.5 THE SOUTHERN NODES

Although no official market data exists for office space in

these nodes of the municipality, practitioners suggest that

the office market averages between R30/m² to R70/m².

The lower figure primarily refers to lower grade of office

space.

Rentals in the industrial sector are depicted below. The

relevant graphs indicate industrial rentals between R25/m²

and R30/m². Higher rentals achievable in this market are

for mini factories and here rentals range between R28/m²

and R30/m².

Graph 19: Umbilo - Gross Industrial Rentals

R 5

R 10

R 15

R 20

R 25

R 30

2000

:120

00:3

2001

:120

01:3

2002

:120

02:3

2003

:120

03:3

2004

:120

04:3

2005

:120

05:3

R/

m2

250 500 1,000 2,500 5,000


Graph 20: Umbongintwini - Gross Industrial Rentals

R 5

R 10

R 15

R 20

R 25

R 30

R 35

2003

:220

03:3

2003

:420

04:1

2004

:220

04:3

2004

:420

05:1

2005

:220

05:3

2005

:4

R/

m2

250 500 1,000 2,500 5,000



2739/KG Page 42 2006/06/06

Graph 21: Jacobs - Gross Industrial Rentals

R 5

R 10

R 15

R 20

R 25

R 30

2000

:120

00:3

2001

:120

01:3

2002

:120

02:3

2003

:120

03:3

2004

:120

04:3

2005

:120

05:3

R/

m2

250 500 1,000 2,500 5,000


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/

Prospecton R263/m2 R263/m2 R263/m2 R263/m2


Industrial values in the South tend to be somewhat lower

than for instance in the west, but that probably is a

reflection of the type of space rather than the quality of the

space. Land values in the node are still relatively high

peaking at some R300/m².

In general, property indicators for Durban show an

increase in property value and rentals although it can be

argued that this performance does vary from one node to

the next.


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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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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, Tongaat 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,

Ntuzuma, 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


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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


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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.

Documents

Ethekwini report 06-6-2006...Ethekwini Property Market Review 2739/KG CONTENTS PAGE NO.: EXECUTIVE SUMMARY 1 1. INTRODUCTION 3 1.1 THE BRIEF 3 1.2 REPORT STRUCTURE 4 2. THE SOUTH AFRICAN