Real Estate Investor Magazine Commercial Handbook 2013

CONTENTS
FEATURES
8 Perfect Shopping Centres 26 Aerotropolis 34 Listed Property Fund
42 Work Out The Return
54 Expand Into Africa
58 Technology In Retail Trends
5 Editors Letter
Investment starts here
24 Industrial Space In JHB

Where is the demand?
6 Trends, Returns & 2014

In the commercial market
26 The Rise Of The Aerotropolis

The new face of commercial investment
8 The Secret Behind Perfect Shopping Centres

Its all in the strategy
30 Retail Demand Rising

In outlying areas
14 What Puts The S

In success
34 Building A Listed Property Fund

Get the know-how now
16 Boost Your Income

With facilities management Keep vacancies low
36 What Makes A Good Location

For a business?
18 Its All In The Facade
40 Cape Town Creates
Aesthetic appeal for offices
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Commercial Handbook 2013
42 Work Out The Return

On your investment
THE TEAM
Publisher - Neale Petersen | Editor - Angelique Redmond Designers - James Clark & Amy Little | Office Assistant - Melissa Petersen Traffic - Juanita Heilbron | Financial Manager - Marisa George Web Administrator - Russell Bennett | Sales Manager - Roy Lategan Sales Executives - Andre Evens, Renier Lombard, Alex Masamuna, Marc Oppel, Lindsay Reynolds, Fabian Murphy & Chase Daniels
46 Navigating The Market Place

With Redefine
48 Transport Corridors
Harness the opportunities
52 JSE Listing Provides Building Blocks

For future growth
54 Expand Into Africa
The time for investing is now
58 Technological Advances In Retail Trends

Dont be left behind
62 Managing Your Commercial Property

Should you go it alone?
64 Quotes
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Commercial Banking
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Commercial Property Finance
EDITORS LETTER
Investment Starts Here
elcome to the fourth annual edition of your invaluable Commercial Property Investment Guide. Despite the tough economic times facing South Africa, with rising costs and slow growth, there are still great opportunities in the commercial property investment sector. In this edition we explore those investment opportunities and show you how to take advantage of them. Now, more than ever, is the time to get back to the basics of commercial property investing, to rediscover what excited you about investing in the first place and then to apply that enthusiasm to adding more value to the investments you already own. Its time to focus on creative renovation and rejuvenation, adding value to your existing developments and attracting the right tenants. The service sector is experiencing declining growth, vacancies are rising, wildcat strikes have shaken business conf idence, and with the 2014 elections nearing, the economic stability of the economy is uncertain.
Commercial property investors cannot afford to be complacent. It is in these times of uncertainty that ingenuity and change can transform the property investment sector. Its easy to succeed in the good times, its a lot harder to do so in tough times. Despite the challenges that lie ahead, investors who diligently apply themselves and use the research in this handbook to create a strategy for rising to the challenges, will not just survive but will enjoy success. So, challenge yourself! Head back to the drawing board, think outside the box and reap the rewards. Happy Reading! Angelique Redmond EDITOR
Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.
-Franklin D. Roosevelt
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GETTING STARTED
BY AHMED MOTARA
Trends, Returns & 2014

In the commercial market
he current environment in which commercial property operates is characterised by record low interest rates, low GDP growth, tightly held higher quality physical assets and income returns becoming increasingly relevant. In recent years, with
GDP growth trending below 4%, we have seen an increased demand for the safer asset classes within the property asset class begin to emerge. This has manifested in investors increasingly seeking properties providing certainty in income returns. Capital returns, while still relevant, have become less of a key determinant in seeking the ideal commercial property. Within commercial property, we are seeing investors continuing to seek the defensive asset classes they perceive within retail, office and industrial asset classes. In the retail category, the annuity stream nature and low vacancies of large retail centres remains in favour, with the expectation that they can continue to weather a weak GDP growth environment. Due to their larger physical size and tenant mix including national anchors, these retail assets provide high certainty on annuity income even with a potentially weak consumer
6 Commercial Handbook 2013
environment emerging. A trend that also appears to remain intact is the extension and redevelopment of existing retail centres, with new centres only being considered if strong demand by retailers is evident. Speculative developments are increasingly not in favour. In the industrial category the past few years have seen many property companies seek to reduce their exposure to manufacturing and mini-units. The defensive area within industrial, from both an income and capital growth perspective, remains the warehousing and distribution element. Demand for this type of space is likely to remain high, with prized assets tightly held and not often coming up for sale. Office space continues to represent the largely problem area in the SA commercial property landscape, with vacancies and negative rental growth remaining areas of concern. A negative dynamic continues to be played out through tenants shifting into higher quality office space as landlords drop their required rentals and, in instances, offer rent-free periods when faced with high vacancies. Higher vacancies in the lower quality
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office space are currently driving the ongoing negative rental growth dynamic. Increasingly, it appears that
a concern when rates eventually rise in future. A key feature of the current commercial property market is also reflected in scarcity value of high quality physical assets at a price buyers would consider fair on a 12-month view. This is partly due to prized assets being considered on a longer-term view by potential sellers, particularly those assets with high certainty on continued positive income growth and capital appreciation. Evidence in the market would suggest that to acquire such assets currently does not appear overly attractive on a 12-month view, but will require a significantly longer investor timeframe. A common mantra in property circles relates to location, location, location, in determining success in commercial property. While this is important, in the current environment refurbishing and spending the necessary capital to adequately maintain a building is also extremely relevant in attracting the right tenant and filling voids. With current consensus expectations for GDP growth of 2.3% in 2013 and 3.1% in 2014, any material
without a return to strong GDP (and accompanying employment) growth we are unlikely to see a break in this cycle in the near term. On the very high quality office space, namely A and P grade, we are seeing continued strong demand, particularly in the Rosebank and Sandton nodes. This is however not representative of strength in the overall office market. Many new property listings in the past 24 months have had a similar flavour, namely office portfolios with government tenants and BEE credentials at the landlord level. These listings have performed well, partly as a function of a highly selective approach adopted by property companies regarding which government buildings and tenants they want in their portfolios. While it is likely that these governmenttenanted portfolios will continue to grow in future years, we note that the acquisition yields for government buildings are becoming increasingly compressed as competition mounts for parcels of government-tenanted portfolios. We conclude that SA commercial property overall is well positioned to provide sustainable low doubledigit returns for the medium term. Overall office vacancies are showing some elements of stabilisation, but this could be a function of rent-free periods being provided by landlords and lower rentals being offered to tenants. In the industrial space, a continuation of strong demand for logistics space is expected to continue, with manufacturing remaining a difficult sector from a landlord perspective. In retail the large retail centres are likely to remain strong performers with smaller centres (node dependent) not always as defensively positioned. SA commercial property continues to benefit from a low interest rate environment, which has allowed for growth through developments and acquisitions coming online at yields that were not as feasible in a higher rate environment a few years ago. Funding costs, for those who have not fixed a significant portion of their debt, is
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improvement in the overall office space is unlikely to emerge from a vacancy or rental growth perspective. Retail vacancies in the larger regional centres are already at low levels and unlikely to see significant further improvement. Industrial vacancies in manufacturing and small industrial units could see some improvement, but would require higher GDP growth than the market anticipates. SA commercial property remains attractive for those investors with the right properties seeking longterm annuity income and capital growth. Slow and steady gains over time may not appeal to everyone, but expecting significant returns in the very short term without accompanying strong GDP growth is not a likely scenario.
RESOURCES
Renaissance Capital
Commercial Handbook 2013 7
RETAIL
BY JONATHAN SMITH
The Secrect Behind Perfect Shopping Centres

Its all in the strategy
reating an exceptional shopping centre requires retail landlords to implement strategies across four categories of innovation in order to encourage patrons to remain in their centres as long as possible during each visit and to increase their spend. Successfully implementing these strategies results
which determine their respective spending capacity and patterns are wealth and age levels. Thus, creating an exceptional shopping centre means knowing who your typical shopper profile is likely to be from both a wealth level and age perspective: this requires surveying the target area of your centre and determining their spending patterns in so doing. Creating the correct tenant mix of a shopping centre is of fundamental importance to its success. There are a number of assumptions which some landlords make, however, that may be incorrect. The correct tenant mix arises through matching the profile of a centres target market: this means establishing the profile of a centres target population during a few steps. D etermining the optimal catchment area
in the creation of exceptional retail centres, capable of attracting a continued or constant flow of visitors and shoppers which identify the centre as their home-awayfrom-home, whilst also deriving extensive capital gain for the owner. The four categories of innovation are: (1) matching the needs of the target community; (2) meeting the needs of a diverse shopper spectrum which encourages all the members of a family to visit your retail centre; (3) creating an attractive and inviting shopper-tainment environment which retains shoppers; (4) ensuring that the centre is both clean and safe for shoppers. (1) Matching the needs of the target community Shoppers should best be simply categorised by wealth level and age. There may well be other ways to categorise shoppers but the most important aspects
(geographical nodes) from which the subject shopping centre shall attract patrons (shoppers): it is important to note that the optimal catchment area will be determined by factors such as proximity to competing centres as well as geographical constraints (including rivers, mountains and traffic patterns).
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D etermining the typical population profile of the subject shopping centres catchment area: this
will include the typical income level, living standard measure profile and age profile of the subject shopping centres catchment area. Determining the typical expenditure profile and pattern (the spending capacity) of the subject shopping centres catchment area and estimating the subject shopping centres probable market share. This refers to the most probable number of shoppers at each income level that shall frequent the subject shopping centre during the various days of the week and will enable landlords to estimate the typical expenditure across each retail category. D etermining the optimal retail sector mix to match the typical expenditure profile which the subject shopping centre shall sustain during the each day of week. Matching the optimal retail sector mix to the various trading densities required by each retail tenant to formulate the optimal tenant composition of the subject shopping centre.
exciting centre which encourages repeated sales but also establishes a sustainable centre which endures
for decades: patrons come to accept that such centres meet all of their shopping needs and refrain from going elsewhere. (2) Meeting the needs of a diverse shopper spectrum The tenant mix that is ultimately selected and implemented will determine the sustainability of a centre by, ultimately, establishing a centre of mass appeal. A hi-tech model can be used to project the ideal tenant mix by formulating the split between the required anchors and the line shops. So, depending on the optimal catchment areas population numbers and profile, the size of the required food supermarkets, clothing and shoe stores, furniture stores, banks and department stores can be determined by projecting the anticipated trade density of each store. Thereafter, the necessary line shops (that is those smaller retailers without which modern society
Design the optimal layout of the tenant mix so as to procure the optimal design, retail-sector content and tenant mix of the subject shopping centre. Once the optimal tenancy requirements have been empirically derived, a balance between national retailers and line shops can be formulated to provide shoppers with access to standard goods and brands as well as unique supplies which titillate a shoppers interest in browsing and shopping for more than just basic requirements. Most retail landlords err by believing that a national tenant profile creates an income-stable centre and forget to encourage line shop tenancies. However, having a wide variety of line shops creates not only an
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cannot do without) are inserted. These will include optometrists, cellphone shops, restaurants, coffee shops and fast food retailers, fabric and linen providers, computer service providers and business service providers. In order to establish an exemplary centre, the inclusion of entertainment providers, health and beauty practitioners, hairdressers, medical practitioners, homeware suppliers and interior designers, security service providers, toys and hobby shops and travel service providers is preferable. And, to round off an exemplary centre, art and
antique sellers, audiovisual- equipment distributors, booking offices, book shops and stationery providers, confectionary and sweet shops, dry-cleaners, jewellers and fashion accessory outlets, f lorists, musical
RETAIL
instrument suppliers, outdoor activity outlets, sportswear stores, speciality stores and telephone service stores should be included. which stolen, illicit, poor quality knock-offs and fake goods are made available to shoppers. Drugs and other illegal substances are also likely to be sold from mismanaged micro-trading environments.
It is important to match the size of all of these stores with the anticipated trading density that the optimal catchment area of the centre shall offer. Tenant profiles of successful shopping centres Trendsetting retailers: those chains which constantly deliver both a leading product offering and store design which is modern, inviting and customer-appropriate. A high number of speciality stores: Although landlords rely on national and provincial chains to accrue sustainable rental income, high-quality speciality stores create variety and cause shoppers to return to a centre on several occasions. Two critical requirements of variety specialist stores are that (i) they be sellers of exceptionally high quality merchandise and (ii) implement a carefully strategised marketing campaign so as to ensure that their target clientele are adequately aware of their product offering.
Dedicated busking areas: busking can be a moodenhancer which can lead to visitors becoming sufficiently comfortable so as to be transformed into shoppers and repeat-shoppers. However, buskers need to complement the typical shopper profile of the subject centre and not be intrusive. For this reason, buskers should be allocated locations which do not intrude on visitors pathways or movement. The management of a prominent shopping centre in Gauteng places loud, intrusive buskers at its main entrance and this has a decidedly negative affect on patrons entering the centre. (3)Creating an attractive shopper-tainment environment A third and vital component towards creating a shopping environment which will attract retain shoppers on a sustainable basis is to establish a centre which becomes a home-away-from-home for patrons. There are three elements to this process: creating an ambience which makes shoppers feel special; holding frequent and upmarket events to which visitors feel invited, and ensuring that your tenants work together to provide service excellence. Creating a special ambience Creating a special, inviting ambience means introducing special water features and artwork which counters the clinical appearance of your shopping centre: a number of shoppers visit a mall in order to remove themselves from a mundane home environment and the inclusion of attractive features which promotes a picturesque environment is a way of enticing shoppers to visit often and stay longer. There are a number of environment-enhancing factors that are critical to establishing sustained success.
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Sustainable restaurant mix: a carefully-structured and properly segmented research survey should be conducted amongst each shopping centres target market in order to establish eatery preferences that will sustain continued patronage. Quality informal retailers: informal traders (such as craft marketers) often contribute towards both a mood-enhancing environment and the integration of a shopping centre into the local community (and vice versa). However, these informal traders need to be of an exceptional standard and present an image which is designed to enhance a shopping centre rather than create the appearance of a down-market trading environment. It is a real concern all over the world that flea markets are prone to become areas in
RETAIL
An initial consideration is that of design and layout. These are the design and layout factors that contribute towards an exemplary shopping environment which attracts and retains visitors and shoppers. Design features that contribute towards the success of a shopping centre A water f ront or natural feature around which the cent re is const r ucted . O u r move towa rds experiencing nature something which visitors to our centres may not be able to naturally enjoy from their homes means that any natural environment feature (and, especially a waterfront) will attract visitors purely for the enjoyment of seeing and enjoying such a feature. Visitors will then spend time in the associated centre and, eventually, spend their money. Extensive open spaces (as far as practically possible) and natural light with good airf low inside the centre. This can be artif icially created through the construction of features which imitate the outdoors. An example of this is the rock-climbing wall included in the Gateway shopping centre near Umhlanga Rocks on the north coast of KwaZulu-Natal. A multi-use development with a linked cinema venue, hotel and conference centre all of which promotes the establishment of a single-location availability of needs across a wide spectrum of users: private shoppers, entertainment, leisure, networking and business.
Internal and external aesthetically pleasing displays of both achievable and unachievable purchases, which displays are tastefully presented. So, for example, these may include clothing and sportsware displays as well as cars, furniture and artwork. A clean and light finish throughout the centre, amplified by the correct use of natural (wherever possible) or artificial lighting. The extensive use of glass (or transparent Perspex) contributes towards a natural environment. An environment which is completely free of tardy commercial signs (such as sale and clearance sale and 50% off) but which, instead, tastefully displays merchandise in a manner which encourages visitors to browse and consider purchases. I would like to emphasise that the design and layout principles discussed herein must be complemented by a soundly-worked tenant mix and promotion strategy, as described below. Other facilities and service providers that appear consistently amongst the worlds foremost shopping centres include: High quality jewellery, personal effects and artwork Wine-merchants and spirit distributors Linked sporting facilities such as squash courts and bowling alleys: these facilities work provided that they are complemented by a tenant mix which caters appropriately for other leisure activities, such as eating out.
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Large and separate outdoor facilities with, wherever possible, the provision of entertainment, sporting and leisure activities. These might include boating or other water activities, amphitheatres in which (regular) entertainment-shows can be held, arenas and expo centres, art galleries and contemporary displays (such as ornamental sculptures and busker displays) all with adequate public seating. Centres which manage to achieve these attractions are sometimes called festivity centres. Outdoor restaurant venues which, ideally, overlook the natural feature(s) around which the centre is constructed.
An integrated hotel, conference centre and health spa (as mentioned before) provides access to a wider target market which will also avail of the shopping facilities within the linked shopping centre.
integration of an art gallery and aquarium also provides an attractive leisure option to visitors. Cinemas and theatres: provided that these are tastefully integrated into shopping centres, they attract visitors who then spend additional money throughout the balance of a centre. Child-minding facilities: parents and minders who are able to integrate their children into safe and well-administered child care facilities within a shopping centre are more likely to spend substantial time within a centre which provides such facilities. Customer service Finally, each retailer and service provider within a shopping centre needs to be aware of the need to promote a sense of satisfaction amongst browsers and shoppers that will remain entrenched within their minds. Accordingly, tenants of a retail centre need to work together in unison to provide levels of service
Integration into the local and regional transportation system: an assessment of several failed shopping centres recently revealed that a destructive factor common to all was the lack of accessibility via public transport. Formal amphitheatre: our research into successful shopping cent res worldw ide show t hat t he establishment of a formal amphitheatre at which a regular and qualitative series of live entertainment concerts are presented draws a sustained patronage to such centres. Once again, however, high standards need to be set and maintained. Communities react decisively and strongly to a centre management that coordinates performances of a poor quality, low standard and mediocre presentation. Local community performances: although these
must be of an exceptional standard, inviting local community performers to participate in events at a shopping-centre encourages community support and, by extension, spending. Leisure activities: a common theme amongst the worlds most successful shopping centres is the integration of the positive shopping experience and the equally positive entertainment experience. Shoppertainment, as it has become known, is of supreme value to mall visitors and derives extensive benefit to retailers and, consequently, to landlords. Thus, the introduction of leisure activities including (wherever possible) water-based activities (such as ferries, paddle boats, water entertainment and lakeside restaurants), physical activities (such as rock climbing, skating and rollerblading) and leisure park rides. In so far as is practical, the
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that identify both their stores and the centre as a whole as being exceptional and worth repeated visits. Each and every tenant must provide a level of service which is exemplary in nature in order to contribute towards the shoppers overall experience. A single negative experience might induce a patron not to return to the centre. It is of absolute importance that landlords set and periodically test the standards at which each tenant must operate. This is of material significance to the promotion of the shopping centre in which they are located.
RESOURCES
Courtwell Consulting
STRATEGIES
What Puts The
S In
BY GAYE DE VILLIERS
here is much to be said for the rejuvenation of decaying suburbs or the creation of vibrant, thriving nodes within city areas, but what precisely is it that makes for a successful precinct, and gives it a clear and appealing identity of its own? What are the key ingredients which signal the start of a precinct and what shapes this cycle in its life? How does a precinct attain an identity or sense of community of real interest to stakeholders and how can developers positively inf luence the direction or creation of a precinct? asks David Reid investment sales broker for JHI in Gauteng. Obvious success stories include Maboneng Precinct with its popular Arts on Main and Melrose Arch in Johannesburg, Century City in Cape Towns northern suburbs, Gateways Newtown centre in uMhlanga, KwaZulu-Natal and St Georges Mall in Cape Towns CBD.
and Pretoria. Those with vision have identified a specific locale and because of its unique qualities and proximity to motorways, public transport and amenities have decided it has the potential to become a different type of development within its hub. It may arise from an assembling of land opportunities or the purchase of old properties and redevelopment thereof, but with a central vision and creation of its own identity.
Naturally there are different types of precincts. A precinct may grow from natural town planning parameters with a combination of shops and offices, such as Rosebank, Newtown and the CBD in Johannesburg. Reid says it could in a sense be consciously superimposed on an area, such as Melrose Arch, Canal Walk and Century City, and Waterfall Estate strategically positioned between Johannesburg
Take for example, Rivonia Boulevard, which has retail, including anchor shops, entertainment, residential, restaurants and offices, all of which complement each other to form an identifiable node. For some time this area went through the doldrums, but now appears to be re-emerging. One can see that very often a precinct is driven by developers who recognise the potential positive aspects of a precinct and that development land is earmarked and gradually triggered by incoming trends.
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It is also interesting to look at relatively old shopping centres, which tend to have all the necessary services
required such as supermarkets, banks, dry cleaners, a post office and the like, and because they are in a densely developed and trafficked area, they continue to thrive, such as Dunkeld West and the Valley Centre in Craighall. However, it must be pointed out that cost structures in respect of older centres tend to be very different from cost structures of the newer or refurbished centres, and this is also a contributing factor to their success. A precinct may also arise from a particular requirement, for example, a student accommodation precinct has been created to cater for the requirements of a young population in proximity to educational facilities, such as in Braamfontein in Johannesburg and Hatfield in Pretoria. It is critical for developers and financial institutions to understand the nature of a precinct before they commence planning. The aesthetics and ambience of a precinct need to be considered as a whole. For example, Johannesburgs Main Street precinct between the Magistrates Courts and Gandhi Square was created out of a desire to preserve the value of the office buildings in the neighbourhood - and so the street was acquired by local landlords on a leasehold basis and converted to a pedestrian mall. In St Georges Mall in Cape Towns CBD the landlords similarly came together and formed a city improvement district, says Reid. In addition, a precinct could be located at a mining town, such as Burgersfort, but instead of in the town centre, the precinct is developed on the outskirts, with shopping facilities, residential and all the ingredients for a precinct, but on the periphery of the town. So where are opportunities highlighted for the potential creation of a successful precinct? Reid says typically it would be in a high traffic zone with ageing buildings, which have the potential to be redeveloped. And it would require those with the capability, drive and vision to make it happen such as Arts on Main in Maboneng Precinct.
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Consider how Bryanston has evolved from residential and offices and a very upmarket shopping
centre to almost become a CBD on its own. Randburg is also interesting as it has evolved out of a transport hub and with retail, commercial and government offices, is becoming a key node of its own, says Reid. Sandton is an interesting case in point, as this area is going through another cycle in its life. In the last 15 years it has seen unprecedented development by a limited number of developers on the back of a strong tenant demand. Buildings here tend to have a lifespan of 10-15 years before they become dated and are replaced, and we are seeing an inner movement within Sandton with corporate and office tenants relocating just 500m down the road to secure more modern, prime accommodation. For example, Alexander Forbes has moved just two blocks from a 26 000 square metre space to the same size office accommodation a short distance away. The reason is the dynamics of the area have changed, and businesses such as these are positioning themselves in new, better quality offices in a financial district at
the gateway to Sandton and in close proximity to the Gautrain station. Reid says this also raises the question as to whether developers build according to a lease formula do developments have an economic lifecycle longer than 10 years, after which the developers then look to sell, and what impact can this have potentially negative on a building or buildings within a precinct? How do you avoid the latter? The fact is one has to acknowledge the financial undertow which has a major influence on the lifecycle of a precinct. And the stakeholders or landlords within a precinct have a management role within that precinct, possibly in the form of an improvement district.
RESOURCES
JHI
MANAGING
BY ANGIE REDMOND
Boost Your Income
With facilities managemnt

which have a negative impact on the environment. This provides a tremendous opportunity for the astute facilities manager. Action steps with regard to energy saving, waste recycling and minimising the use and pollution of water are simply no longer sufficient. Facilities managers are expected to provide guidance and to implement action steps on the full spectrum of green issues during the construction and use phase of a building, says Abdullah. He says the starting point is the acknowledgement that during their lifecycles, buildings use a significant amount of natural resources, and the use phase of a buildings lifecycle accounts for as much as 85 percent of its total impact on the environment. As a result, facilities managers have the opportunity to implement strategic plans for buildings under management, partnering with landlords to compile appropriate action plans in regard to energy savings - which in turn will effect savings for landlords as well as tenants.
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n recent years, it has become evident that requirements by property owners and property asset managers in regard to property services are changing. It is now expected that property services companies provide a comprehensive one-stop property and facilities management service, says Sulayman Abdullah, CEO of Excellerate Facilities Management (EFM) a subsidiary of Excellerate Property Services. EFM, which provides such a service, has Level 3 BBBEE credentials and operates nationally in South Africa with headquarters in Sandton, Johannesburg. Facilities management is rapidly emerging as an important factor which can play a major role in boosting the income stream of property assets. Worldwide it is accepted that facilities management has developed faster than almost any other discipline in the property industry. However, the current emphasis where it can add significant value is in helping property owners and tenants to address wasteful and unnecessary practices
Facilities management in South Africa is best described as the practice of coordinating the working environment with the people and processes of the organisation. Its a combined approach at all levels in the organisation to plan and implement support facilities in line with prime business objectives. Globally, it is therefore regarded as an integral part of the strategic thrust of an organisation. However, the fact is that generally organisations prefer to focus their expertise on their core business, with non-core activities, such as facilities management, managed by entities more suitably structured and resourced. Abdullah says here in South Africa an integrated approach is adopted to manage facilities in line with prime property management objectives such as leasing, rental collection, tenant liaison and general administration. These are described as hard and soft services. Hard services include those elements that form part of the physical parts of the building such as the structure itself, exterior and interior f inishes, plumbing, mechanical and electrical
installations, off ice installations, maintenance and refurbishments, while the soft services focus on issues such as security, cleaning, pest control, hygiene and garden services. In some instances, facilities management services can be extended to incorporate additional services such as fleet, mail and cafeteria management. Now more than ever, well-maintained properties are those which will stand out, so its crucial that facilities managers ensure that the service providers, from refuse removal to cleaning and security, maintain exemplary standards and keep buildings immaculate. If theres a possibility of vacancies arising, well-kept assets have an advantage. The economic downturn has created an ideal opportunity for growth in the facilities management industry as a means of creating cost savings, and this is a trend that will become increasingly evident, adds Abdullah.
RESOURCES
Excellerate Facilities Management
IMPROVING Keep vacancies low
BY GAYE DE VILLIERS
Its All In The Facade
hile the location of a commercial property is always of key importance, the appearance of the building plays a significant role in attracting and retaining tenants due to the perceived desirability of the venue, says Rudolf Nieman, managing director of JHI Project Management a member of the Excellerate Property Services group. Says Nieman: A common occurrence is that a perfectly commercially viable building may develop vacancies because of problems created by a defunct facade or a facade that does not possess what is seen as a timeless design. For example, buildings in an office park with a particular theme may become dated over time as architectural trends change. He says factors relating to facades, which may impact negatively on the desirability of a commercial property, include: Old fashioned appearance The building does not keep abreast with green requirements The exterior of the building does not complement or keep pace with modern interiors, which are constantly upgraded/modernised via the tenant installation allowance, as tenants move in and out of buildings.
Cracks, leaks and safety issues related to the facade of the building. Nieman says this disparity is especially noticeable in areas where new buildings are being constructed and defunct facades of existing and older buildings are highlighted in stark contrast to the more modern structures. The cladding solution JHI Project Management and ARC Architects have embarked on detailed analyses of various methods of cladding dated facades of existing buildings. Pierre van Driel, senior partner at ARC, says that masonry facade refurbishment through cladding can be achieved using a variety of materials ranging from ceramic extruded profiles and large format porcelain sheets to composite recycled plastic and aluminium panels - or even concrete. Each material provides its own U-value which is the measurement of the materials insulation capabilities. Depending on the fixing detail, when utilising a sub-frame system when cladding an existing building an air barrier is formed between the old facade and the new material. This lowers the heat gain through the facade fabric, which in turn raises the insulation properties of the facade. This reduces the load on the
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Tile Africa Contracts

versatility ensures success
TILE AFRICA CONTRACTS supplies numerous commercial projects in different industries illustrating its versatility and diverse service offering which covers supply, fitment and project management. Its portfolio is proof that the company can deliver an extensive range of aesthetic and technical products to cater to various industries ranging from hotels, upmarket apartments and residential estates to restaurants, fast-service outlets, retail stores and shopping centres. It also indicates that TILE AFRICA CONTRACTS offers its clients trusted advice which leads to long term relationships. Corporate customers with developments throughout the country receive an invaluable service from TILE AFRICA CONTRACTS thanks to its national footprint, centralised coordination for national projects and the specialist advice offered by its well-equipped consultants and specifiers. Many of our clients extend work to us based on previous interactions that they have had with us. Its very important to not only have the correct stock levels on hand for large scale products but to also have a team that is well rounded and equipped to cater to any of our clients needs, says Contracts Sales Manager for TILE AFRICA CONTRACTS, Vaughn Dyssel. For more information visit our website at www.tileafrica.co.za or call 011 979 0327.
IMPROVING
HVAC (heating, ventilation and air-conditioning) plant to regulate temperatures within the building. These air barriers may also be ventilated, thereby advancing the insulation further, says van Driel. He says many of these systems can be premanufactured in modules off-site and installed at a fraction of the time a conventional type facade would take to be erected. Sealing the building is always on the programmes critical path. Besides the time gain, it reduces any disruption or inconvenience to tenants. This is crucial when renovating, as there are probably user tenants who are at work behind the existing facade. And should a panel be damaged, it can simply be replaced without a string of mixed discipline contractors being required. Some of these systems claim to be self cleaning but these treatments tend to be more effective in higher rainfall areas. Nieman says some suppliers provide CAD (computer aided design) detailing services in-house and included in their rates, as achieving neat jointing and corners and low wastage can be tricky. Facade cladding may also provide a solution to high level moisture ingress, and to be doubly sure one can prepare or spray seal the deteriorating existing masonry prior to cladding. Some older buildings may have experienced consolidation settlement cracks in their infancy, which have been visible ever since, however cladding conceals these. Insulating the wall may reduce expansion movement in the long run and any cracks can be monitored further from the inside. Some of the lighter weight systems can even be installed using patented heavy-duty Velcro strips. Regardless which system is used, its advisable that a facade engineer is approached first to confirm height and specific wind loads prior to detail selection for obvious reasons of safety. Many new buildings exhibit these systems because they make sense and are the way environmentally conscious developers are moving. Naturally, the initial outlay is offset with the savings achieved in consumption and maintenance bills in the longer term, he says. A proper design and execution of a new facade can contribute greatly to reposition an existing building and add value to this asset. JHI Properties has experienced a marked increase in achievable rentals because of the redesign of the facades of properties more specifically in regard to office blocks. Commenting generally on trends, Nieman says increasingly, landlords, asset managers and tenants are embarking on a holistic property portfolio greening strategy in order to reap the full financial benefits relating to all aspects which impact on the environment. These include categories such as water management, recycling of materials, materials used when refurbishing a building, and active awareness management, among others. More and more these role players are looking to their property managers to provide them with a onestop solution involving not only energy management, but also action plans in regard to other categories which have an impact on the environment. In response to the rapidly growing need, JHI has formulated a comprehensive but simple green strategy involving 18 categories which impact on the environment. Says Nieman: The practical aspect of this strategy culminates in an electronic and user-friendly initiatives chart which enables the user to find action steps linked to a specific category. Furthermore, to assist with the applicable intervention, each action step can be evaluated in terms of expertise required, costs involved and benefits to the landlord, the occupier of the space, and the environment. In addition, the initiatives chart can either be used to assess an individual building or a portfolio of properties.
Besides increasing the performance of the existing building and reducing effective time on site, cladding an outdated building can transport it from the previous century and bring it up to date with current trends.
RESOURCES
JHI
www.reimag.co.za
RELOCATING
RENOVATING
RE-FINANCING
COMMERCIAL PROPERTY FINANCE FROM BIDVEST BANK

Whatever you have in the pipeline, get the specialist financial solution for commercial properties up to R200 million. And take your business where it needs to be.
Email property@bidvestbank.co.za and your personal consultant will contact you. Call 0860 11 11 77 or visit www.bidvestbank.co.za
Bidvest Bank Limited (Reg No 2000/006478/06) is a licensed financial services and registered credit provider, NCRCP17. BlastBC 123478
BIDVEST BANK
Bidvest Bank Predicts Growth In Commercial Property Lending
idvest Bank is planning to significantly step up its activities in the commercial property market in the coming months and sees potential for sustained lending growth in the sector in the second half of the year and going forward.
Confidence in property industry prospects is backed by growing demand, says Byron Corcoran, who heads asset-based lending to clients in both the commercial property industry and the medical sector. Were particularly excited about prospects in the commercial property field, Corcoran adds. We have had exposure to this market for some time. We see steadily rising demand for funding across the commercial property industry in general while our own offering has made strong gains. We are confident even greater focus on the asset-based finance market in the months ahead will deliver even stronger growth. Bidvest Bank previously engaged in asset-backed lending via its fleet finance and vehicle leasing division. However, growth in asset-based finance has been so strong that this specialisation now justifies separate divisional status. Corcoran explains: Weve enjoyed exceptional growth. In six years our asset-based finance volumes have increased 100-fold. A key contributor to that growth has been the commercial property sector. Over that period, the industry has gone through some challenging times, though this is not reflected in our
22
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CORPORATE PROFILE
figures. Admittedly, we come off a relatively low base in a market traditionally dominated by major banking players, but our niche offering has been strongly supported. He attributes higher volumes to the Bidvest Bank model. We have a highly entrepreneurial culture, he says. We deal with like-minded clients in the commercial property field. They generally have a strong entrepreneurial mind-set and were sensitive to the pressures they face. They want highly competitive rates. They want a deal structure that suits their particular circumstances and they dont want to waste time. With Bidvest Bank, our corporate customers deal with only one point of contact. They are not shunted around. We take ownership of the transaction and deliver personal service. In a market dominated by big players who deal in big numbers, individual treatment like this is the exception rather than the rule. However, as specialists with a niche offering we can commit to personal involvement like this. Entrepreneurs in the commercial property space appreciate personal service. Thats why weve grown and plan to grow some more.
Bidvest Bank is a wholly owned subsidiary of the JSE-listed Bidvest Group and in recent years has broadened the spread of activities from an initial base in foreign exchange to include deposit accounts, loans and advances, leasing and vehicle finance. Call 0860 11 11 77, email property@bidvestbank.co.za or visit www.bidvestbank.co.za
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23
STRATEGIES
BY ANGIE REDMOND
Industrial Space In JHB

Where is the demand?
ohannesburgs Krisp Properties is the latest high-end developer to invest in the increasingly sought after light industrial space between Johannesburg and Pretoria. A growing clamour for modern light industrial space in Gauteng has seen a host of established companies flocking to a new light industrial hub in Olifantsfontein, located between Johannesburg and Pretoria and 20 minutes from OR Tambo International Airport.
The area is fast becoming a preferred hub for businesses looking for modern and secure light industrial space, along the fast growing R21 corridor with direct access to the Northern Gauteng, Central Gauteng and Ekurhuleni, close to the N1. According to Jon Busser, a director at Urban Dynamics town planners, the Olifantsfontein-Clayville industrial
area was in a prime position thanks to Governments initiatives to develop the R21 Development Corridor and its links to the OR Tambo Aerotropolis nearby. There is a growing need for modern and secure light industrial parks linked to the Aerotropolis and IDZ development around the OR Tambo International Airport, said Busser. The growing demand for light industrial space was also good news for job creation, he said. Theres lot of new development in the area. The R21 Development Corridor and developments around the established Olifantsfontein-Clayville industrial area should see tremendous growth and sustainable job creation as new light industry and business parks are created in response to market demands.
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Recently established companies include Murray & Roberts, Stocks and Stocks, MAN Truck, Corobrik, SA Breweries, Clover, Imperial Distribution, Adcock Ingram, Spar DC, Tiger Brands, Nampack and Nestle. Due to the high demand for industrial space, Krisp Properties is the latest developer to offer modern and safe light industrial space in the area. The company is in the advanced stages of developing the Olifantsfontein Industrial Park along Olifantsfontein Road. The park is set to raise the bar in terms of light industrial space equipped with state-of-the-art security and modern technology.
Gauteng is currently one of the worlds fastest growing metropolitan areas and well-located land
within the priority development corridors and nodes between Joburg and Pretoria will see sustainable growth. Krisp Property executive director Jordan Mann described Olifantsfontein as up and coming for light industry, as the area was well-situated between Midrand, the airport and Pretoria. We are developing 8ha of land at the centre of industrial area, which makes it very well positioned for light industry, Mann said. The entire estate will also be equipped with state-of-the-art security. Eleven stands, ranging from 3 000m to 11 000m, would be developed. Work would start in early 2014, he said.
Town planning for the project is complete and everything is ready. We plan to start putting in
services early next year, Mann said. Six portions of the 11 erven will have major exposure to the high traffic flow along Olifantsfontein Road. Each stand could have a 70% construction coverage, with up to two storeys, Mann added. Krisp Properties is also busy with another major development, the R500 million Clearwater Office Park along Atlas Road, which is being built to complement the OR Tambo Aerotropolis. The company already boasts successes which include Randburg Office Park, Ebony Park Shopping Centre in Midrand and Sandton Office Park.
RESOURCES
Krisp Properties
Marna van der Walt Ceo, Excellerate Property Services

3. What do you think the new trends in commercial property investment will be? 3.1 Residential investment the formulation of residential funds that will list on the JSE. These funds will consist of various residential types of properties, for example student accommodation. 3.2 Expansion into Africa as the various property markets in Africa expand and increase their service offering so will the need for additional services. These services are new to the markets and create a new set of challenges and potential income stream. 4. Which country in Africa will become a investment destination and why? 4.1 Ghana which has minerals, like oil and gold and it is easy to do business. The property market in Ghana is more mature than most and the concept of a more formal property market is setting in. As the market matures and expands the additional services will also follow suit. It also offers value for money and good returns on investments. There is a shortage of suitable space and the market has seen a upgrade in infrastructure. 4.2 Nigeria has huge potential the fastest growing middle class in Africa, there is a shortage of suitable space. Economic growth is still driven by the local oil-and-gas industry and this will continue to drive the demand for infrastructure and support services, including the need for retail and industrial space. Commercial Handbook 2013 25
Q&A
1.What pushed you to become the top of your game? Courage to dream Passion for people Obsession for quality The courage to challenge the status quo 2. Where do you see commercial investment getting the best returns? That depends on your risk profile. Foreign investors receive great value for their money and much higher return than they will in their local markets - which have stagnated. www.reimag.co.za
SMART MOVES
BY ANGIE REDMOND
The Rise Of The Aerotropolis

The new face of commercial investment
any city airports have become airport c it ies, w it h t he rapid e x pa nsion of airport-linked facilities such as commercial buildings, warehouses and transport; the 21st century has embraced the concept of the Aerotropolis. Dr John Kasarda, a world-renowned figure for his work on airport cities, is considered the leading developer of the Aerotropolis concept, an idea that was named one of the ten ideas that will change the world by Time magazine in 2011. He explains: The Aerotropolis, like any other traditional city, consists of a central core with rings of development permeating outwards; unlike a traditional city, however, the cit ys core is an airport and all neighbouring development supports and is supported in turn by the airport industry. One look at city development highlights the strong relationship between transportation and growth. The very first modern cities developed around seaports and then rivers and canals; later it was railways and
poverty alleviation and the equitable share of business opportunities. Airports are vital contributors to a citys economy and the Aerotropolis model could become a major contributor to economic invigoration. The airport in Chicago, USA is the second largest office market in Midwest America, while Washingtons airport area has more retail sales than any other city besides
Manhattan. A new airport development can stimulate a struggling economy and generate billions in annual economic activity, tax revenue and create and sustain jobs, something sorely needed in South Africa. Aerotropolis projects There are a number of exciting and innovative Aerotropolis projects in the pipeline for South Africa. This will have a massive impact on commercial property as new avenues for investment open up. Two of these projects are Dube City and OR Tambo. Dube City is the new South African hub of international trade and business. It is 1km from the International Terminal, 3.3 km from the N2 and 1.8 km from the R102. It is a unique, vibrant, cosmopolitan 24-hour work, play and stay destination, a city that ref lects the unique cultural diversity of
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highways. And now the in the 21st century, airports have become the primary drivers of urban growth and economic success. Gauteng Premier Nomvula Mokonyane says, The Aerotropolis should be seen as a vehicle to position the SA economy among the world economies. It must be about creating jobs,
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27
SMART MOVES
KwaZulu-Natal, with architecture that makes full use of the superlative coastal climate and the surrounding natural environment. It is pedestrian-orientated, with several walkways and parks. Dube City demands innovative, best practice design that is founded on the principles of sustainable development. Dube City covers a total area of 12 hectares and offers fully serviced sites that have development rights. It is a master developer driven, high quality, managed public environment that is seeking a green star rating. Dube City is zoned for Special Zone 10 (airport) and, in order to be consistent with a high level of design aesthetic and sustainability, a Design and Review Panel monitors its design and architecture. The first phase of development includes: Main access roads; Pedestrian boulevards; Dube Square, the heart of Dube City -this consists of an urban amphitheatre and stage, water features and restaurants. It will be the meeting place for people from around the world; 29 Degrees South, the new green star rated office park of Dube TradePort. The land use for what the metro calls region A has been approved. This region includes the areas closest to the airport like Kempton Park, Germiston and Boksburg central business districts and some industrial areas. At this stage only 21 per cent of the land use in this region is for residential purposes and 23 per cent is industrial areas like Isando, Spartan, Sebenza and Anderbolt. The ORTIA Aerotropolis will attract industries related to time-sensitive manufacturing, e-commerce fulfilment, telecommunication and logistics, hotels, retail outlets, entertainment complexes and offices for business people who travel frequently. It will comprise clusters of business parks, logistics parks, industrial parks, distribution centres, information technology complexes and wholesalers who are located around the airport and along transportation corridors, serving the airport. An Aerotropolis also typically includes Free Trade Zones [FTZs] providing certain incentives for businesses located within this business space. By leveraging on the largest and busiest airport in Africa, the Aerotropolis will provide a new commercial hub for the Gauteng Province, and support both local and international trade through Free Trade Zones and the increased efficiencies related to clustering. Investment opportunities exist for developers in the development of trade and exhibition space, hotels and leisure, industrial and office parks. An Aerotropolis creates a new and innovative urban space providing new commercial hubs and new avenues for revenue as well as job growth and a much-welcomed boost to the countrys economy. For the savvy commercial investor this type of investment offers great returns in the commercial sector.
Dube City is a superb quality and managed public environment. It is part of a 117-hectare Greenfield site, with pedestrian-friendly zones, a tree-lined boulevard, dedicated cycle lanes, Dube Square, and multi-functional lawn spaces. In the Ekurhuleni municipality, which is the local authority and government for Gauteng, plans are underway to create an Aerotropolis around OR Tambo airport. The Aerotropolis concept was approved by Ekurhuleni in April 2007 and reviewed and approved in 2011. Since then council officials have worked towards making this a reality. The Ekurhuleni Aerotropolis enjoys national status and forms part of the 2050 national strategic infrastructure programme.
RESOURCES
Dube Tradeport
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STRATEGIES
BY GAYE DE VILLIERS
Retail Demand Rising
In outlying areas
border, and Mthatha and Tsolo in what was formerly known as the Transkei, are experiencing an increased demand for retail space, reports Amanda de Lange, portfolio manager of JHI Properties, based in Port Elizabeth. JHI operates in the area along the Eastern Cape from Mthatha through to East London, King Williamstown, Sterkspruit and Queenstown. Currently we are receiving a high number of enquiries for retail space in Sterkspruit and Mthatha, mainly as a result of a pent-up demand as well as growing passing trade. It also appears that national retailers, who may perhaps have saturated the market in major centres, are now looking at outlying areas with potential, says de Lange. General improvement in market sentiment Says de Lange: In the Port Elizabeth area we are
utlying towns in the Eastern Cape, such as Sterkspruit situated just before the Lesotho
currently seeing more positive economic sentiment. Generally, we are experiencing a very low vacancy rate in
retail space in Port Elizabeth, including the Gelvandale and Kwamagxaki shopping centres. In the industrial property sector in Port Elizabeth we recently sold a 14 509 square metre property to the existing tenant. In East London we are experiencing a demand for retail space in strip malls in the CBD, adds de Lange. Currently we have 700 sqm of B grade office space available at a market related rental of R75 per square metre per month in the well-maintained, prime located Perm building in Oxford Street.At present there are opportunities to lease space at very competitive rentals in conveniently situated locations. While purpose-built premises may be best for operational requirements and more cost effective to run, the capital outlay involved can be prohibitive. In addition, vacant land which is available for such development is usually located out of town and further from national and main roads.
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STRATEGIES
Conversely, premises, which are available to rent, are usually more centrally situated and while large units are perhaps scarcer than smaller units, the rental rate is certainly more cost effective than building. This is combined with the advantage of repairs and propert y rates remaining the responsibility of the landlord, says de Lange. Some tips to help you create the right rural reatil centre T hink out of the box: T here a re abundant opportunities in township and rural areas. In areas sometimes less than a couple of hours away from urban centres, or closer, communities are often starved for formal retail offerings. Before discounting expansion into these areas look closely and talk to companies who understand the locations, dynamics and market opportunities in township and rural areas. Be appropriate in what you offer: People in township and rural areas are seeking convenience in shopping, value for money and cultural relevance. Rural shoppers may live far from the bright lights, but they are just as savvy as urbanites. People are all brand conscious: While poverty is obviously a barrier to growing brands, income has little bearing when it comes to buying brand-name products. Research shows that in the township consumers mind a brand-name product has to be far superior to a no-name knock-off. Research shows that brand-name products are viewed as liberators. Interact with the community: Township and rural shopping centres are the quintessential market squares, where people naturally gather to trade, meet, interact, etc. They are the natural centres of communal life. Retailers should entrench themselves, their brands and their offerings by becoming involved in communal life, finding ways of making their goods and services relevant and being seen to be socially active and responsible. View informal traders as an opportunity: Often a barrier to entry for retailers is the personnel to operate and manage shops in outlying areas. There are many experienced local traders who have been informally plying their trade in the area for a while.
RESOURCES
JHI
32
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LISTED
BY MORNE REINDEERS
Building A Listed Property Fund

Get the know-how now
riven by an historic low interest rate environment, the listed property sector experienced a boom in recent years, outperforming other listed securities on the JSE by some margin. This is because investors continuously search for above-average yield and relatively low risk, and listed property offers such an investment opportunity. Investor demand has created a favourable environment for property companies to come to market, and it therefore is no surprise that this has been the most active sector for new listings on the JSE over the past two years. With a plethora of listed property companies to choose from, investors have to consider the focus of the property fund, managements experience and expertise in building a fund in a listed environment and how listed property funds can ensure they remain competitive and profitable in an increasingly demanding environment.
We have definitely noticed a trend where assets coming to market are either fully or overpriced, says Rob Kane, Chief Executive of Vunani Property Investment Fund (VPIF).
There is currently a high demand for quality assets, and funding is relatively cheap, given the low interest rates. This means that some buyers are willing to pay more than they ordinarily would, especially if there are a number of bidders, he explains. Given the above context, how does one then build a property fund? I think management focus, discipline and experience is crucial, says Kane. You have to be prepared to walk away from a deal if it doesnt make financial sense. He points out that there are a number of listed property funds with a specific sector focus, which creates greater opportunities for value creation and growth. VPIF, for example, specialises in the commercial office sector and focuses on A and B+ grade buildings.
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Compared to premium rated properties, which are often fully priced and charge very high rentals,
the buildings we focus on offer better arbitrage opportunities and the potential to redevelop, Kane says. Apart from a higher property valuation, the refurbishment of these buildings also attracts more tenants, which means the fund is also able to achieve higher rentals and negotiate longer leases. VPIFs current average lease escalations are around 8.4% and the fund has a 95% tenant retention rate. According to Kane, for every rand that VPIF spends, it gets at least three rand back in value uplift. Acquisition and refurbishment of these buildings will sustain the growth of the fund over the long term, says Kane. Office rentals are currently depressed, which means there has been limited building activity since 2008. This has led to a shortage of supply that will drive rentals up as the economy improves. VPIFs exceptionally low vacancy rate of 3.5% underscores the effectiveness of its approach to building a fund. Experience and expertise in refurbishments further enabled VPIF to explore value-enhancing opportunities through green refurbishments. Its important for us that refurbishments are both environmentally-friendly, and that it makes economic sense. Sustainability is no longer a nice to have but is increasingly becoming a key selling point to attract and retain discerning tenants. Generally tenant take-up is driven by different motivators and landlords need to do a lot of education around the long-term benefits of green leasing, he added. These benef its not only relate to energy and water efficiencies, but to a healthier overall office environment, translating into lower absenteeism and greater productivity.
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He advocates a pragmatic approach as green leasing increasingly gains in popularity. We need a
combination of behavioral change and efficiency of equipment to reduce our carbon footprint and small changes can make a big difference. Apart from being a moral obligation, there is also a strong business case, which we believe will be the main driver for green leasing. Kane uses VPIFs 14 Loop Street building in Cape Towns central business district as an example. Our tenant at Loop Street is the Department of Environmental Affairs which meant we had immediate buy-in and support for the renovation. The renovation saw water consumption cut to a sixteenth and power consumption to less than a third of that of other buildings in the groups portfolio. This equates to a rental saving of between 10% and 15% which was passed on to the tenant. We installed waterless urinals and dual-flush toilets. Rain water is collected on the roof of the building, stored and used as grey water. Extensive use of
renewable and recycled material such as bamboo and aluminium was used, which reduced the environmental impact of the renovation. Double glazed, tinted windows can open horizontally as well as vertically enabling a free flow of air throughout the building, thus reducing the need for air-conditioning. Kane concludes that cost containment is an important factor in managing and building a listed property fund. Especially in a listed environment, the market wants to know how you manage finance charges, how you contain operational costs and how you deliver on growth. We actively manage our debt and have made use of the current low interest rate environment to settle some more expensive facilities.
RESOURCES
Vunani Property Investment Fund
STRATEGIES
BY GAYE DE VILLIERS
What Makes A Good Location

For a business?
R
36
ising transportation costs, including fuel and the proposed e-tolling, traffic congestion and the need for ease of access are just some of the relevant factors which impact on selecting a suitable location for a business, says David Reid, investment sales broker for JHI Properties.
The physical location of a business is extremely important, because critical to the success of any company is the ability to effectively reach its desired target market. In turn, this involves supply and demand whether this relates to products or services. Suppliers need to be able to supply with
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STRATEGIES
ease, and markets need to be accessible in order to meet demand. Reid says supply and demand are influenced by many factors, including awareness of the product or service on offer. However, location has a major impact on all these, even to the extent whereby having good exposure or visibilit y to passing traff ic provides an ideal marketing opportunity which can save on advertising costs. Being in an acceptable location close to suppliers and customers or clients, having ease of access to highways and key transport routes, close proximity to public transport - particularly for staff, good overall security and having sufficient secure parking, all play a significant role in the choice of location. He says depending on the type of business and its target market, comfort factors such as general aesthetics and quality of the building may be relevant. Furthermore, it may be advantageous to be situated close to destinations that have synergies or something in common with the business, for example businesses offering f inancial services tend to be within easy reach of each other, in well-known nodes. This depends on the business, and some businesses may prefer to be close to their competitors because of these nodal factors. Consideration should also be given to whether competitors situated close by can be bypassed by customers, so ease of communication with target markets is an important factor. reviewing their source of supply ie going elsewhere, staff may experience transport problems or there may be a lack of suitability on the part of the new location, resulting in low morale, and a danger that not all the factors that affect the feasibility of the business are taken care of. In the long run, if the business location proves over time to be a bad one, sound advice is to rather get out sooner than later if you are an owneroccupier put the property on the market even if it means a loss and do what is right for the business and its long term sustainability. If you are renting you need to consider the length of the lease and what your options are for relocation. Some businesses prefer to rent rather than purchase as it affords them far greater f lexibility should their business expand or if their requirements may change in the future. A courier company, for example, may well prefer to rent space - a factor which gives them the flexibility in order to relocate if needed, in order to be in the right location, says Reid. He adds that if your business is situated in an area that has become run down owing to a lack of service delivery, you need to try and mitigate the problem. If service delivery is poor, get together with other businesses in the area and be proactive in trying to find a solution. In rejuvenating a location, one may find a number of landlords in an area or precinct are willing to join forces and perhaps set aside some of their proceeds from rentals for rejuvenation. Good examples of this are The Main Street precinct in Johannesburg and Braamfontein, while the successful pedestrianisation and rejuvenation of Cape Towns central city is a further case in point, concludes Reid.
You may f ind banks for example in the same node, or retail businesses choosing to be in high traffic shopping centres, says Reid. Restaurants and distribution centres are good examples of businesses which need to be in the right location. The immediate and long-term consequences of being situated in the wrong location for the business should be considered. This can result in customers
RESOURCES
JHI
www.reimag.co.za
www.reimag.co.za
39
OFFICE TRENDS
BY ANGIE REDMOND
Cape Town Creates

Aesthetic appeal for offices
otal vacancy in the CBD of Cape Town for office space is in line with the previous quarters f igures at 12.8%, along with Claremont 21%, Bellville 7.9%, Century City 5.8%, Rondebosch/Newlands 9.3%, Pinelands 3.3% and the V & A Waterfront 1.2% according to the SAPOA office vacancy survey.
with the bulk of the vacancies located in secondary buildings. It is in this secondary space where the landlords compete for tenants, that very favourable lease terms are being achieved. Interest and activity in prime located commercial property in Cape Towns vibrant Green Point and De Waterkant areas continues to gather momentum, says Selwyn Sharon, leasing, sales and investment broker for JHI Properties.
One thing which sets apart office spaces from one another is the aesthetic appeal they ofer to prospective tenants. Cape Town has shown that the aesthetics of your office can, in fact, have a large impact on their vacancy rates. Dave Russell, a director of Baker Street Properties, comments, It is important to note that the buildings surveyed underwent a re-grading at the beginning of the year, resulting in a noticeable change to the CBD figures, where the total A grade area decreased and the B grade increased. The subsequent reduction in the A grade and increase in the B grade vacancy should not be taken as a market trend, but merely a result of the re-grading. Top quality buildings in all nodes continue to enjoy little or no vacancies
Upmarket, trendy space for off ice and retail accommodation is in demand in prime locations within these areas. This node has become a fashionable and sophisticated, highly desirable lifestyle-type destination to work in, with 15 coffee shops within a five minute walk, including vibey venues such as Origin Coffee Roasting and Truth Coffee Shop, as well as the Cape Quarter lifestyle shopping centre - all right on your doorstep, says Sharon. Currently, rental rates for upmarket office accommodation in Green Point and the fringe of the city range from around R110 to R180 a square metre. Looking back over the past two decades, its evident that requirements for office accommodation have
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changed considerably. Businesses want to be located in a pleasing environment with secure parking for
their staff and clients. Features they look for include, for example, green areas included in the workplace and generally maximum natural light particularly for creative spaces, a spacious kitchen or recreational area where staff can relax and recharge, and perhaps even a gym for exercise. Having the workplace located in appealing surrounds enables staff to enjoy the convenience of safely walking to coffee shops, retail outlets and the like. An advantage of new office buildings is that they can easily incorporate green, energy-saving features, which further add to the appeal, he says. Considering that these days, many people spend a great deal of time at work, often outside what were previously considered conventional working hours, these added comforts become even more important in retaining quality staff, he adds. Commenting on the market in general, Sharon says its positive to see that the demand for P Grade offices has been recognised by developers, who are moving
Foreshore area. Importantly, these new developments or redevelopments further enhance the aesthetic appeal of Cape Towns central area, he says.
We are a lso experiencing a demand from international companies and diplomatic off ices seeking standalone commercially zoned houses with grounds for parking. With hotels, the Cape Town Stadium, Green Point Urban Park and V&A Waterfront close at hand, coupled with a buzzing, metropolitan atmosphere, this area is high on their priority list. At the V&A Waterfronts Clock Tower development, which is now almost fully occupied, we recently concluded a lease for office space for an international oil drilling company, he says. Adds Sharon: While there is a high demand for retail accommodation, very little suitable space is available. There are, however, good opportunities to rent office space in the CBD from R85 per square metre for B+ Grade accommodation.
TOP TIPS FOR AESTHETIC APPEAL 1

Lighting: Architectural success is impacted by choices in lighting, both for the interior and exteriors of spaces and buildings. Lighting affects how we perceive the building itself, as well as the people and objects within it. Lighting can be used to define zones within a space. Windows:By replacing old windows with something new, it can completely change the look of a room. The fact that more sunlight will be able to enter the room will give it a warmer as well as brighter look. Appealing Surrounds: It all comes back to location, the right environment is very important to the aesthetic appeal the offiice will have, having the right amenities nearby will dramatically increase the aesthetics of your office space.
forward with projects such as Portside, 22 Bree Street and the Media Quarter the latter, which is almost complete. At the Media Quarter, Sharon has secured a 10-year lease for a decor company. There has been a pent-up demand for prime office space, particularly when one considers the fact that other than a few buildings such as The Hudson and the Cape Quarter, very few new buildings have been completed in recent years. New additions to The Hudson building are nearing completion with about 800sqm of space available and very suitable for creative users. Now we are seeing major tenants taking up space FNB has taken half the office space at Portside - which is to become Cape Towns tallest building (on the corner of Buitengracht Street and Hans Strijdom), a large firm of attorneys is to occupy 22 Bree Street, while there is the new Allan Gray building taking shape in the V&A Waterfront. In addition to this, The Atlantic building is being redeveloped in the
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RESOURCES
JHI
FINANCE
BY FRANCOIS VIRULY
Work Out The Return

On your investment
B
42
efore undertaking a property investment, the investor not only has to decide on the expected return, but equal importance should be given to whether the focus is on capital growth, or the income-generating potential of the property. This means deciding on how the total return will be derived from these two sources. On deciding an appropriate return, the starting point or benchmark is usually the treasury or long
bond which reflects the risk-free rate. Investment markets add an appropriate risk premium to the risk-free rate ref lecting the characteristics of an investment. Studies suggest that the risk associated with a property investment lies between the bond and equity markets. Property investments are typically characterised by poor levels of information and liquidity, and longterm risks associated with urban decay and changing
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environmental and tenant requirements. Over time, a property will typically suffer from physical, functional and economic obsolescence. These drivers affect the economic life and expected returns of a property investment. Physical obsolescence refers to the observation that as building ages, building maintenance and operating costs rise, reducing total returns. Moreover, changing tenant requirements result in the functional obsolescence of a building. Typical examples of functional obsolescence include the inability of a factory to deliver modern warehousing space. The demand for space which reflects modern work practices can also affect the desirability of office space. Economic obsolescence primarily reflects the fact that a decline in rentals caused by urban decay or poor economic growth prospects may reduce rental income and total returns. While physical, functional and economic obsolescence can be managed to a degree, the challenge for the investor is to ensure that an appropriate balance is maintained between risk and return. property secures minus operating costs. The value of the property will be determined by overall market conditions, economic growth prospects, the position of the property cycle and interest rates.
Investors focused on capital growth will tend to acquire properties that are expected to increase in value. This may include properties that can be redeveloped or which have the potential to be let at higher rentals. It may also mean acquiring a property at the bottom of the property cycle, or placing a focus on properties that are located in a part of town that is expected to benefit from an urban regeneration programme. At the height of the 2004-2008 property boom investors saw residential property values were rising at a rate of 20% per annum. The speculator will hold a property for a relatively short period with the intention of securing a significant capital growth. The investor in the commercial property market tends to focus on the capitalisation rate, or expected discounted value of the cash flow of the property to determine the value of a property. The capitalisation rate for different types of property is published by estate agents, valuers and industry sources such as SAPOA. The higher the risk associated with a property, the higher the capitalisation rate and the lower the value that will be paid for the property. In the case of a residential property investment, a comparative method or the value of comparative properties is used to assess property values.
Property returns in South Africa have reflected a 600-basis point premium over the long bond rate.
Therefore with a long bond rate of 8%, property investors would, on average, require a return of 14%. Invariably this return differs depending on the sector and geographic position of a property. In the commercial sector a property with blue chip tenants will secure a more stable return to a property that is reliant on riskier tenants. In the case of a property development, the expected return will be in excess of 20%. Once the expected return has been established, the investor must decide on the expected balance between the yield and capital return of the property. The income yield reflects the net operating income which the property provides. It is measured as a ratio between the annual net operating income of the property and its market value. The net operating income is a function of the rental income that the
For the investor, the objective is to secure a return that reflects the risks associated with the investment. The perceived risk will be a function of the experience that an investor has in a specific sector of the market. But before entering an investment, it is important to decide on the emphasis that will be placed on income or capital growth and the conditions under which the investment will be exited.
RESOURCES
Viruly Consulting
www.reimag.co.za
Need more space?
Need less space? Need better space? Contact Redene Properties. We have the space you need to work smarter. To view our portfolio, go to www.redene.co.za or call 0860DEFINE and take a leap into a brighter new world. COMMERCIAL | INDUSTRIAL | RETAIL
Were not landlords. Were people.
CHARLIE BRAVO #181-12
SMART MOVES
BY JACLYN LOVELL
With Redefine
Navigating The Marketplace
hanges in the economic climate, mixed with constant technological advances, can make the ever-changing landscape of retail property tricky to navigate. Understanding consumer behaviour and changes in the market and keeping up with local and global trends, are all a sure way to make sure you find your way back to success.
Right now, its likely that middle- to lower-income consumers are under more pressure than upperincome consumers. This means more discretionary categories, like electronics and furniture, are sacrif iced, before clothing and food purchases. Further cutbacks are then likely to mean less spend on items like clothes and entertainment. Food is the last category to change, says Coetzee.
Redefine Properties Retail Analyst Antoinette Coetzee explains that consumer behaviour is always in flux, with factors like income and confidence impacting it. Lower job creation, slower wage increases, higher transport costs, increasing inflation and slower pace of credit growth have all led to a decline in consumer confidence in 2013. And lower consumer confidence impacts retail spending. With these growing consumer pressures, many South Africans are changing their shopping behaviour. This means changing to a cheaper brand, buying less of a specific product, moving from one product to a completely different product or spending less on discretionary items.
When it comes to growth in the South African retail market over the past few years, Coetzee says it feels like its been a zero-sum game. The market here is relatively mature and, without significant job creation or wide-scale real income growth, growth in consumer spending looks likely to remain pedestrian. However, she notes that retailers focusing on best product, best price, or both, have gained market share from competitors. While category growth has been benign, individual players have recorded some great numbers. Increases come from doing a better job, knowing who your customer is and gaining share of their wallet.
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As for future growth in the present market, Coetzee says it is likely to come from final stages of formalisation of the market - taking a proper retail experience into underdeveloped or under-serviced areas.
Even more interesting was that 95% of the participants admitted the touch and feel of a product
Coetzee also notes that while there will always be talk of online retail being a threat to brick-and-mortar shopping or international retailers being a threat to our much-loved local players, threats to South African retail in the short-and medium-term are macro. Nonetheless, online shopping is certainly having a growing impact on retail and shopping malls, worldwide. In the recent Cushman & Wakefield report titled: Global Perspective on Retail: Online Retail. South Africa the only African country to feature - ranked 40th in the top 50 countries globally for scale and potential for online retail. The report highlights several factors that significantly influence on the size and scope of potential online markets. Internet and mobile penetration remain the
was still the most important. This suggests that while an online presence for retailers is necessary, a real experience for the consumer needs to be on offer too. It also points to a strong future for shopping malls. Online shopping in South Africa is estimated at 0.8% of the total retail sales. This proportion is still small but already represents R6 billion yearly. Its expected to increase over R18 billion by 2018 to 2020. The proportion of online shopping of total retail sales will then increase to 2% to 3%, driven strongly by smart phone apps. Store siz e and layout planning is a l ready challenging. Online buying trends are now adding to this complexity. Each retailer has to decide if their store is a warehouse, a showroom, a distribution centre, a place where the experience is the main draw card or a brand pavilions to showcase their products. There are major opportunities to develop multi-
biggest driving factors. South Africas Internet user base is projected to reach 9 million users by 2014, with most new users expected to access the Internet via their cellphones. Coetzee says that important information about retailers embracing online retail is revealed in the recently released report commissioned by the South African Council of Shopping Centres (SACSC). According to this report, 58% of South Africans participating in the survey werent shopping online, but half of those not currently buying goods online said they would switch to online shopping in the future. If thats not convincing enough, 27% of the total market indicated that they will only use online shopping in future.
channel retail strategies, and this significant retail trend will continue to have a great impact on future retailing. This is why Coetzee works with retailers to understand more about their businesses and retail trends, so Redefine can identify the potential upside for their malls and position its centres to outperform. As a group Redefine focuses on understanding how key trends impact our assets, says Coetzee. Were working more closely with our retailers to understand their strategies, needs and growth prof iles going forward. Were also aware that many micro-location dynamics impact mall tenant performance and were looking to better identify these trends across and within our portfolio.
RESOURCES
Redefine
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DEVELOPING Harness the opportunities
BY JONATHAN SMITH
Transport Corridors
the question of whether or not transport corridors do in fact increase housing prices and then command higher rentals. In 1846 in London, the f irst survey was conducted into this. A genteman went door-to-door to determine the impact the London rail lines had on rentals. It determined that weekly and monthly rents in that district rose from 10% to 25% as a result of their close proximity to public transport. The location of transportation systems affect property value in two key ways: they provide the property dwellers with increased accessibility but, also, negatively create the noise, pollution and increased crime that property close to a transportation system is associated with. Generally, the public benefit outweighs the negative aspects associated with transport corridors.
esearchers have always been interested in
wealth have arisen across South Africa in recent years with the development of a number of new transport corridors. The surrounding commercial (as well as residential) development opportunities within these corridors are extensive. Although not an exhaustive list, the following new transport corridors have provided property developers and investors with an opportunity to build and buy into wealth creating real estate: The Gautrain corridor between central Johannesburg and Pretoria and the Johannesburg airport on the eastern side of the main Gauteng development corridor; The road link network between Pretoria and Nelspruit; The road link to Richards Bay along the north coast of KwaZulu Natal; The new KwaZulu-Natal (King Shaka) airport
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A number of opportunities to derive extensive
on the north coast of KwaZulu-Natal; The Rustenburg Rapid Transport system (scheduled to be completed in 2014).
the Galleria, all of which are within walking distance of Gautrains Rosebank Station.
Future planned transport and infrastructural developments between Durban and Johannesburg include: The development of Cato Ridge on the eastern coast as a dry port; The sale of the old Durban airport site to Transnet so that a dug out port can be constructed The extension of commuter rail network to reach Pietermaritzburg; The development of Harrismith as a logistics hub; The setting up of several logistics hubs throughout Gauteng. These new corridor developments act as a catalyst for other new real estate development, which development typically follows this (nodal development) pattern: catalyst >> industrial development >> residential development >> social development >> retail development >> office development >> more residential development >> more retail development. An example of how transport corridors influence property
Rosebank has also seen the development or refurbishment of new hotels (including, for example, 45 on Bath, a boutique hotel offering exceptional comfort to both business travellers and tourists. Standard Banks new office development which shall boast environmentally-friendly construction components and energy-saving processes shall be complete and ready for occupation in early 2013. The development or refurbishment of several world-class hotels, entertainment centres and shopping centres within Sandton such as the Balalaika, Michelangelo, Hilton and Garden Court Hotels, Sandton Towers, Nelson Mandela Square and Sandton City. Pedestrian access to these destinations will be improved as most are within walking distance from the Sandton station. The construction of a 40-storey skyscraper and the development of an additional two hundred thousand square metres of office space since 2009. Although development within this node is slower than
can be seen when you look at the Gautrain and how this new transport corridor encouraged development and refurbishment. The Gautrain project commenced in 2006 and over 11 000 people were employed to work on the fifty sites which the project impacted along its route. Now in full operation, the Gautrain links Pretoria, Johannesburg and OR Tambo airport by quick, efficient rides. Property development along the route has been, as can be expected, dynamic and has resulted in many wealthcreation opportunities for developers and investors. These include: The transformation of the mixed-use precinct in Rosebank (directly opposite the new Rosebank station) to include a R600 million upgrading of the retail developments such as the Zone, the Firs and
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everyone would have liked, Alexandra is receiving both private and public investment, the latter being under the governments Alexandra Urban Renewal project.
Linking Johannesburg and Pretoria is the Blue IQ Innovation Hub a strategic development initiative of many years by the Gauteng provincial government in association with the CSIR and the University of Pretoria. A number of developments around scientific and technical research and development have been commenced within this development band. A ten-hectare land portion close to the Centurion station is to be redeveloped to include an ultra-modern convention centre, hotel precinct, residential developments and new office developments. This proposed mixeduse development represents one of the best investment opportunities within South Africa at present. 132
DEVELOPING
embassies and four prominent universities are located within the greater Pretoria precinct and the opportunity to tap into the service provision to these markets abounds. Centurion lakeside a short bus ride from the Centurion station is to be revamped and improved with the lake, itself, being rehabilitated to improve its attractiveness. As administrative headquarters to our national government, Pretorias central business district remains a firm target for property investment, an aspect of our development terrain that has been somewhat under-rated in recent years: a new series development and inner-city R10-billion development termed Re Kgabisa Tshwane will revitalise this inner city and re-establish Pretoria as a leading city comparable to both Cape Town and London. Residential development in both Hatfield and Centurion has risen exponentially as a result of the train and bus transport connectivity which the Gautrain concept has provided while east of Beckett Street, Hatfields residential area is changing into an exclusive business district as property owners avail of the consent use zoning rights within this node. The value-extraction opportunity herein lies in converting or redeveloping residential units into commercial office accommodation to correlate with business growth. Rhodesfield another Gautrain station site will also be revised within the local authoritys Spatial Development Framework (a document which property developers should obtain from all local authorities in order to see where development opportunities can best be exploited) at a level exceeding R800 billion. Both residential and commercial development is planned for this area and private participation is an excellent opportunity for value creation via property development.
RESOURCES
Courtwell Consulting
Sanett Uys Executive, JHI

with a different risk appetite to traditional investors, and bring a interesting dynamic to the market. Some of the major property funds are also selling properties that are not part of their core focus, bringing interesting opportunities to the market for developers to redevelop and enhance the buildings. As a result, the value of the building is increased and the full potential of the building achieved. 2. What is your personal investment mantra with regards to commercial property? Do your homework, do a proper due diligence and market analysis in the area where your property is located. 3. What key factors are needed for success in commercial property investing? Patience, property is a long-term investment. Make sure you have a good property manager that understands property cycles, budgets and leases. Without the proper management of the income stream, the value of the building will be jeopardised. 4. What makes one investment stand apart from another? That depends, the value that can be unlocked in a building is of interest to investors that want to redevelop or refurbish and location and security of tenure of the lease is more important for investors looking at the income stream. Some buildings just have something special that appeals to investors. www.reimag.co.za
1. Where do you see commercial property investment going in 2014? There will always be a demand for investment properties. The main question remains if the seller and buyer can agree on the value of the building. The majority of the property we are dealing with have been priced correctly and are based on current market levels, which helps to conclude a deal in a reasonable time and manner. There are also various investors in certain properties types 50 that specialises Commercial Handbook 2013
Q&A
OF PROPERTIES OF PROPERTIES
5 5 TYPESTYPES
000 000 665 665

PRICE PRICE PURCHASE PURCHASE FOR 2012 FOR 2012
MEDIAN MEDIAN
5 5 ANALYSIS ANALYSIS
REPORTS REPORTS
MILLION MILLION
PROPERTIES PROPERTIES LISTED LISTED
9,4 9,4
5 5 SEARCHES SEARCHES AVAILABLE AVAILABLE
336 734 336 734

MEDIAN MEDIAN
NUMBER OF NUMBER OF TRANSFERS TRANSFERS FOR 2012 FOR 2012
Property Intellects Intellects searchessearches are smarter are with smarter with Property Property Intellect Intellect provides provides an accurate, an accurate, reliable and reliable andProperty constantly constantly updated updated data research data research tool that tool results that inresults in increased increased functionality functionality and richer and data, richer along data, with along with every business every business decision being decision successful. being successful. uncapped uncapped reporting. reporting. Property Property Intellect Intellect is one of is the one key of products the key products that that But dont But take dont our take word our for word it, give for it it,agive try. it a try. assist clients assist in clients making inbusiness making business decisions, decisions, designeddesigned to toWe know* We youll know* love youll it. love it. increase the increase effectiveness the effectiveness of property of property reportingreporting and and evaluations evaluations with leading withdata leading processing data processing techniques. techniques.
The Smart The Way Smart to Way Search to Search

tel: 0861 tel: 53 0861 53 53 53 53 53 www.propertyintellect.co.za www.propertyintellect.co.za
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LISTED
BY MORNE REINDERS
JSE Listing Provides Building Blocks

For future growth
elta Property Fund is a relative newcomer to the listed property sector of the JSEs main board. The fund listed at a linked unit price of R8.20 on 2 November 2012 with a portfolio of 20 properties valued at R2.1 billion and a market capitalisation of R1.35 billion. The fund specialises in single-tenanted buildings in nodes attractive to government and SARS. The office portfolio represents a 72% sovereign underpin to a substantial portion of the earnings and shields it from private sector risks such as tenant insolvency. As founders we saw an opportunity for a 100% blackmanaged property fund to strategically identify and secure government-tenanted properties, says Sandile Nomvete, CEO of Delta Property Fund. This is a niche sector, requiring specialist skills and operational systems, which has always been our springboard to success. We knew where to find high-yielding, quality assets and had the relationships and knowledge to negotiate good deals, but raising capital to establish and grow such
lined up. There are a number of factors investors consider before buying equity in a company and we had to make sure we offer a compelling proposition in each instance, Nomvete explains. According to Bronwyn Corbett, Chief Financial Officer, investors want to invest in funds that offer superior yield, strong future growth potential and an experienced management team, especially in the current low interest rate environment. We knew we had a unique investment case, but realised
you only have one chance to approach the market, so you have to do it right, continues Nomvete, So we appointed Nedbank Capital as bookrunner, corporate advisor and sponsor together with Bowman Gilfillan to guide us through the legal process. In order to list on the JSEs main board a company has to comply with numerous JSE Listings Requirements as well as the prescriptions of the Companies Act. Once approval to list has been obtained, the company and its advisors have a number of regulatory hurdles to clear before potential investors can be approached.
a portfolio proved challenging - and so the idea of listing Delta was born, explains Nomvete. Deltas vision is to grow the portfolio to approximately R7 billion by 2017 to ensure critical mass and liquidity. In order for us to launch Delta, we wanted to raise up to R980 million with the listing to fund the acquisitions we had
We had to ensure our corporate governance procedures comply with JSE Listings Requirements, and appropriately structured Deltas board in line with the recommendations of the King Code on Corporate Governance, comments Corbett. As a board and
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management team we sat down with our corporate advisory team and weighed up the options of listing by way of private placement or public offer.
linked unitholders, comments Corbett. Earlier this year Delta successfully raised R1 billion in an oversubscribed
A private placement differs from a public offer in that the former is effectively by invitation and the second is open to any qualifying investor. Delta decided on the private placement option as it was confident that enough appetite existed from major institutional investors. Compiling a pre-listing statement a 170 page document setting out the history and motivation for the listing took some doing, especially given our tight deadlines, comments Corbett. In addition, external independent assurances on property valuations and the financial accounts had to be obtained BDO and Active Blue Value Solutions assisted us tremendously. Nedbank Corporate then arranged for us to road show our investment case to South Africas major property investors such as the Public Investment Corporation, Coronation, Investec, Stanlib, Momentum, Sanlam, Liberty and Eskoms pension and provident fund. This included site visits at the various assets in order for potential linked unitholders to familiarise themselves with the portfolio. In light of our decision to list by way of private placement, liquidity was an important consideration. Linked unitholders want to know that they can easily buy and sell their units in a listed company, Nomvete continues. Nedbank Private Wealth offered fantastic access to high-net worth individuals who were interested in our listing story. Their support would ensure continuous trades in Delta units, stimulating liquidity. In addition to meeting with potential investors and obtaining the various regulatory approvals, Delta embarked on a considered media campaign to raise further awareness of the fund. This all finally culminated in our listing on 2 November last year, when we raised R980 million in an oversubscribed private placement, smiles Nomvete. The fact that were listed provides us with a number of options to deliver on the high-growth mandate from
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rights offer to fund a portion of further acquisitions that will see the portfolio expand to R4.3 billion in value. Access to debt funding was further augmented with the introduction of facilities from Standard Bank South Africa in addition to funding lines from Nedbank Capital, she adds. At the end of July, Delta announced that it successfully entered the debt capital markets with the completion of its debut commercial paper issuance. The notes were issued off Deltas newly established R2 billion Domestic Medium Term Note Programme that is registered with the JSE. DLTC01 which is Deltas inaugural issuance is a R190 million, six-month unsecured note with a fixed interest rate of 6.19% per annum. Global Credit Ratings Co. assigned Delta a national scale A2 short-term credit rating. Since our listing late last year, Delta has maintained its growth trajectory. It therefore makes sense for us to diversify our funding sources further by accessing the debt capital market. This provides us with various funding options and leverage when negotiating on acquisitions, remarked Nomvete. Added Corbett: We are very encouraged by the strong support for the initial issuance which was underpinned by a solid credit rating by Global Credit Ratings Co.
TO QUALIFY AS A REIT FUND, SPECIFIES THE JSE, COMPANIES NEED TO HAVE 1 2 3 4

A minimum of R300m in assets A total debt to asset ratio of no more than 60% 75% income from property rentals A distribution minimum of 75% of the distributable profits (dividends).
For investors, there is certainty in that 75% of all net income is paid out and tax exposure is determined only by the tax status of the recipient.
RESOURCES
Delta Property Fund

AFRICA
BY ELIZABETH SENGER
Expand Into Africa
The time for investing is now
he African property market has long been earmarked as presenting tremendous opportunity, as demand for high quality commercial property continues to grow across the continent. Together with Africas sustained strong economic growth and rising documented wealth, more and more major players in global commercial
real estate are considering the continent in their investment strategies. Having averaged GDP growth of more than 5% per annum over the last decade, Africas dynamic economic expansion is expected to continue and is creating wealthier populations, particularly in the largest and most rapidly growing urban centres. Africas mega-cities such as Lagos, Nairobi, Accra, Lusaka and Dar es Salaam are increasingly becoming the drivers of its economic growth and, as a result, are attracting growing interest from occupiers, developers and investors. As a clear indication of Africas growing wealth, the World Bank now classifies 27 of Africas 54 nations as either mid or high-income countries, 12 more than was the case in 2000.
According to Knight Franks Africa Report 2013, city dwellers generally earn more and spend more than their rural counterparts, and the urban middle class is growing across much of the continent. This is helping to create dynamic consumer markets and attracting overseas investors. A recent survey by the Economist Intelligence Unit found that institutional investors
now regard the emergence of Africas middle class and its growing consumerism as the most attractive aspect of investing in Africa, rather than its commodities. Within the retail sector, the increasing wealth and sophistication of African consumers is leading to rising demand for modern retail formats and western-style shopping centres. Countries such as Zambia, Ghana, Kenya and Nigeria have seen a wave of retail construction activity in recent years, which has delivered the first generation of modern shopping malls to many major cities. The construction of further, and larger, shopping centres can be expected, as developers seek to meet the demand for high quality retail space from increased numbers of international retailers entering sub-Saharan markets and major South African chains pursuing expansion plans elsewhere in the continent.
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AFRICA
Several very large modern shopping malls have been opened in North African countries in recent years, such as the Mall of Arabia in Cairo (180 000 sqm GLA) and Morocco Mall in Casablanca (70 000 sqm GLA). In sub-Saharan Africa, the most well developed and sophisticated retail market by far is South Africa, with numerous large shopping centres across the country. In South Africa, the launch of popular international brands is on the rise as more and more retail stores satisfy the local consumers appetite for big labels. Tony Galetti, joint-CEO and co-founder of Galetti Knight Frank comments, Recently the arrival of top international brands such as Burger King, Top Shop and Zara have caused a tremendous amount of excitement in the local markets. Consumer demand in South Africa exists in abundance, and its only a matter of time till the lesser developed sub-Saharan countries start demanding not only the same retail experience as we have in South Africa with our varied choice of world-class shopping centres, but also the same products. South Africa is often used as a testing ground for the international retailers. Once they as developers seek to meet the demand for high quality retail space from increased numbers of international retailers entering sub-Saharan markets and major South African chains such as Shoprite and Pickn Pay pursuing expansion plans in the rest of Africa. Development activity is, however, likely to be concentrated on the biggest and wealthiest cities. In smaller African cities and less well-off countries, small-scale local trading may continue to be the dominant form of retail activity. In fact, the coastal belt of South Africa typically sees rural retail set-ups perform far better than western shopping centres. While high-income groups rank convenience as a top priority, the same does not apply to lower-income groups. Many shoppers in rural areas tend to stockpile and sell the goods on from small trading set-ups of their own in the rural environment, so it is of paramount importance that the offering be a hybrid of supermarket and cash and carry to encourage the wholesale purchaser. Galetti says, The trick is to ensure a clear understanding of this markets specific needs and consumer behaviour patterns. In the office sector, many key African cities have
get established here, and get over the fear of doing business in Africa, they will expand into sub-Saharan Africa as a natural progression. Elsewhere, there are many countries where modern shopping malls are a relatively new phenomenon: The Palms in Lekki, Lagos, regarded as Nigerias first modern shopping centre, was opened in 2006, while Accra Mall, the first of its type in Ghana, opened in 2008. Nigeria and Ghana, along with other sub-Saharan countries including Kenya, Angola and Zambia, have all seen additional shopping centres either completed or commenced in recent years, although their scale is generally smaller than the mega-malls of South Africa and Northern Africa. The construction of further, and larger, shopping centres can be expected,
severe shortages of high quality space built to the specifications expected by international companies. This scarcity of supply has been brought about by a lack of infrastructure in many cities, which has required the construction of completely self-sufficient office blocks and office parks, with no reliance on government for power, sewerage or any other services. This has led to extremely high rents in some cities, particularly where there is strong demand for office space from international occupiers from the oil and gas sector. Indeed, prime office rents in Luanda and Lagos are amongst the highest in the world. In Luanda, recent construction completions have eased some of the pressure on the market and rents have become more affordable over the last twelve months but, even so, prime rents remain well above the levels seen in leading global office markets such as London, New York and Hong Kong.
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Oil companies and the bank ing sector are established sources of demand for off ice space
in Africa, but it is also noteworthy that African economies are diversifying and non-traditional sectors are emerging. The grow th of mobile technolog y in Africa has been a particularly prominent phenomenon over the last decade. Africas technology boom is generating new sources of office market demand and the continent is now home to a number of growing technology clusters, such as Silicon Savannah in Nairobi and Silicon Lagoon in Lagos. Peter Welborn, head of Africa at Knight Frank comments: Property investors and developers looking for emerging market opportunities are increasing external investment in Africa, particularly as the growth markets of the last decade such as Asia-Pacific and Central and Eastern Europe mature and the level of returns they offer begins to diminish. Many African countries remain challenging places in which to do business, but for those able to steer their way through African property markets, there is the promise of high returns and significant growth
of investors to the continent, although the appeal of African countries to investors will vary. As Africas
largest and most mature economy, South Africa should remain attractive as an entry point into the continent, but its economic growth forecasts are less compelling than those of other countries. While they are small markets, low-risk, mid-income countries like Botswana, Namibia and Mauritius will also continue to appeal as relatively safe places in which to do business. It is, however, the large and rapidly emerging economies of sub-Saharan Africa and, in particular, fast-growing cities such as Lagos, Luanda and Nairobi that are likely to be increasingly the hotspots for investors. Cities in poorer, less populous, countries, like the Central African Republic, may get left behind in the rush to invest in Africas more attractive economies. Africa is not a single entity; it is a collection of diverse countries and economies, some of which remain amongst the poorest in the world. Even within the wealthier countries, there are huge income disparities. Nonetheless, there is a growing optimism that, in the words of the World Bank, Africa could be
potential. Knight Frank continues to help investors navigate the rapids in over 40 of the continents most challenging environments. The long-term growth outlook for Africa appears bright. With a large and growing, young and increasingly wealthy population, Africa has a demographic advantage that few other parts of the world will be able to match over the coming decades. The rise of non-traditional economic sectors, such as the telecoms industry, and the growth of service industries supporting the expanding middle class, should help African economies to diversify and become less dependent on commodities, aiding their long-term development. Africas economic growth and emerging consumer markets should continue to attract rising numbers
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on the brink of an economic take-off much like China was 30 years ago. Alistair Elliott, chairman of Knight Frank LLP comments on the newly announced alliance between global property group Knight Frank and South African-based Galetti, The African continent is a key part of our global expansion. Teaming up with Galetti gives us a quantum shift to our plan at a time when Africa is at last being taken much more seriously for both inward and outward investment. I have no doubt that with an infrastructure of 19 offices and over 500 people this puts Knight Frank in a unique position to help occupiers, investors and developers throughout the continent.
RESOURCES
Galetti Knight Frank
RETAIL TRENDS
BY ANGIE REDMOND
Technological Advances In Retail Trends

Dont be left behind
recent study by the South African Council of Shopping Centres (SACSC) shows that South Africans are increasingly latching onto technological advancements and that social media is playing a vital role to both retailers and consumers. One questions raised by the study was: If only 18% of South Africans own a computer then how come one in three has access to the Internet? The answer, is cellphones, says Amanda Stops, CEO of the SACSC. Some 84% of South Africans own a cellphone. Thats how more and more people are going online while on the move. With the role of social media in everyday life increasing all the time, at least three quarters of Internet
astute South Africans use mobile means to stay in touch with social media platforms like Facebook, LinkedIn, Twitter and Mixit. When the SACSC commissioned its detailed survey of 100 local shopping centres, it came up with some fascinating figures about how South Africas favourite hangouts are using South Africas favourite online pastime to engage with customers. For instance, an impressive 59% of social media users actively follow brands. In addition, 27% actually discovered unknown brands via social media. The retail centres and brands of today cannot afford to be left behind technologically. Shopping centres and retail stores need to harness this trend and use it to promote foot traffic, so who is winning the social media race when it comes to
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RETAIL TRENDS
the giants of shopping centres? The king of Facebook is Canal Walk, with 72 134 likes at the time of writing, followed by Montecasino, Melrose Arch, Galleria Mall in Amanzimtoti and V&A Waterfront. Sandton City is winning the Twitter race with over 12 000 followers, followed by V&A Waterfront, Melrose Arch, Gateway Theatre of Shopping and Montecasino. While in countries overseas the trend veers more towards to online shopping than shops online, here in South Africa more and more people are looking towards their cellphones, iPads and tablets to find the shops and brands they want. Social media is becoming not just a marketing tool but the marketing tool. Where will this retail trend head to next? WiFi presents a huge opportunity, says Stops. Because of the massive numbers of South Africans who rely on their cellphones for Internet access, we should increasingly see shopping centres providing customers with free, fast in-house Wi-Fi networks. Much like the US and the UK which both offer free Wi-Fi in the majority of the shops and restaurants. There is plenty of evidence that online retailing is gaining traction in South Africa. A recent survey of day, whether they use it to just browse or to search for an item or to update all their social platforms. So how can you ensure that your technological strategy grows your sales? 1. Make your mobile plan work Make sure your mobile retail site is user-friendly, eye-catching and engages your audience. The right mobile retail site will ensure that you increase your potential pool of Internet shoppers. 2. Make sure your delivery schedule works for your customers One of the biggest problems with Internet shopping is the delivery time; your package either takes too long or simply doesnt arrive. The easy fix solution to this is to ensure you are close to your customer base. Ensure your warehouse is situated close to your biggest pool of customers, and then use a reliable and fast delivery service. 3. Share your stories There is no better way to get free advertising than
600 South African mobile phone users found that two-thirds of South Africans reported shopping online at least some of the time. The MasterCard Worldwide Online Shopping Survey reported that the proportion of South African Internet users shopping online grew to 58% in 2012, up from 53% in 2010 and 44% in 2009. A similar survey of Internet users by the Digital Media and Marketing Association (DMMA), found that people who had spent at least 5 years using the Internet were 50% more likely to do so, which is important because it means that the number of online shoppers will grow as more South African Internet users spend more time online. And one of the fastest modes of accessing the Internet has been cellphones. With faster, smarter and more technologically equipped phones coming out every five minutes, the Internet has become a staple in almost every South Africans
word of mouth. Getting people to share their positive stories about your site and merchandise will increase your brand recognition. By encouraging people to share their stories, more people will want to use your site-free and easy marketing. 4. Navigating is key! The real secret to success for any site is the actual site itself. If your site is easy to use and navigate then half the battle is won. People dont want to have to learn how to use a site, or struggle with navigating a site, if this happens then they will simply click onto another site. Make sure your site is simple, easy-to-use and eye-catching. There are thousands of examples of good and bad websites online, make sure people are talking about your site for the right reasons.
RESOURCES
South African Council of Shopping Centres

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MANAGING
BY ANGIE REDMOND
Managing Your Commercial Property

Should you go it alone?
uying your first commercial property is the start of a new and exciting venture in property investment. But should you manage it alone or should you use a professional property management company? There are benefits to both, but depending on the size of your property portfolio and your other responsibilities, a property management company can help streamline the process of renting and maintaining your building. A very important aspect of property management is ability to have a professional agent take care of all the administration, payments and maintenance arrangements on your behalf, while also keeping an eye on your tenants and making sure that they adhere to the rules and regulations as set forth in their agreements. Monitoring tenants is very important, as the value of your properly relies in part on the way that your property is taken care of. Tenants need to be properly screened to ensure that they are suitable for your particular space and that they are in a position to maintain their contract for the agreed period of time. In order to profit from your investment, you need the right tenants to enter into a long-term lease. Managing Keeping records is always essential and this refers to
payments, deposits, notices, levies, maintenance records, and more. Your property will also be advertised when needed, in order to ensure that tenants occupy your entire space at all times. When a tenant moves out, a new one will be secured and ready to commence their term. Here are a few benefits of working with a professional property management agent: Professional management of your administration functions; Placement and screening of new tenants for vacant spaces; Management of all maintenance and repair work; Monthly management of payments and levies; Enforcement of rules and regulations. Your administrative duties and responsibilities are one of the core aspects of investing in commercial property and if not handled properly, will become a massive hurdle to your investment success. Self-managing landlords will need to find the time to screen tenants, conduct regular property inspections, ensure rent is being paid on time and be on call to attend to maintenance issues. Property managers are able to conduct regular property inspections to identify maintenance issues, ensure the tenant is looking after the property and, if required, liaise with appropriate trades people as soon as possible to address any problems.
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QUOTES
David Reid Investment Property Sales broker for JHI Properties With the majority of listed property funds now registered as REITs, investors in this sector benefit from both investment diversity offered through property and also liquidity not traditionally known as a feature of commercial and industrial property investment. Income producing commercial and industrial properties with secure leases therefore remain in high demand among both listed and private property funds.
Peter Collins JHI Properties regional manager for its broking division in Johannesburg It is sound financial advice that a portion not less than 10% of your investment portfolio should be in commercial property either directly into rental properties ,or via the listed property sector. This sector has produced consistent double digit returns throughout the financial crisis and t he fundamentals remain in place for steady inflation-beating returns in the medium to long term Erwin Rode CEO of Rode & Associates property valuers and consultants Real estate success, like all investments, depends on timing in the first place. Location comes a poor second, especially when buying an existing property, as the location should be in the price already.
Ian Anderson Grindrod Asset Management chief investment officer Although we have seen a lot of activity within the retail sector, most of it is tenant driven, whereas in the office and industrial market, there is still a bit of speculative development - but it is being done knowing that the product that is being developed is in demand.
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Real Estate Investor Magazine Commercial Handbook 2013

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CONTENTS

42 Work Out The Return

54 Expand Into Africa

58 Technology In Retail Trends

Investment starts here

24 Industrial Space In JHB

6 Trends, Returns & 2014

26 The Rise Of The Aerotropolis

8 The Secret Behind Perfect Shopping Centres

30 Retail Demand Rising

14 What Puts The S

34 Building A Listed Property Fund

16 Boost Your Income

36 What Makes A Good Location

18 Its All In The Facade

40 Cape Town Creates

Aesthetic appeal for offices

Commercial Handbook 2013

42 Work Out The Return

46 Navigating The Market Place

52 JSE Listing Provides Building Blocks

54 Expand Into Africa

The time for investing is now

58 Technological Advances In Retail Trends

62 Managing Your Commercial Property

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Investment Starts Here

Trends, Returns & 2014

The Secrect Behind Perfect Shopping Centres

What Puts The

Boost Your Income

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IMPROVING Keep vacancies low

Its All In The Facade

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Industrial Space In JHB

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The Rise Of The Aerotropolis

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