Inner City Revival

Inner City Revival

Private Property South Africa
John Loos

Things are looking promising for inner cities' property markets - even Joburg.

There's so much positive going on in South Africa's property markets these

days that some more cautious-minded individuals could be forgiven for believing

that this is too good to be true, and that it will surely "end in tears".

In the 80s and 90s we had the exodus of many retailers and companies to the

former white "suburbs" (if Sandton and the likes can still be called suburbs),

to the apparent detriment of the traditional Central Business Districts (CBD).

Arguably the worst-hit was that of Johannesburg. Now, there is widespread talk

of turnarounds in the fortunes for the likes of Johannesburg and Durban CBDs,

while Cape Town can be said to have "made it" in terms of averting a Joburg-style


The big question is will the rejuvenation efforts in the CBDs ultimately

succeed? While nothing in the future is ever certain, the driving fundamentals

of inner city rejuvenation appear better now than in the previous decade or two.

This is mainly due to accelerating economic growth and a shortage of economic

infrastructure such as roads and electricity distribution infrastructure to name

but two.

There has also been an increasing shortage of commercial property space,

manifesting itself in declining vacancy rate trends in retail, office and

industrial space categories.

Not surprisingly, therefore, inner city property values have had price booms

similar to the rest of the country, as the massive decline in interest rates

since 1998 along with stronger economic growth has boosted property demand,

while supply has not adjusted rapidly enough. However, price booms have not

necessarily changed the relative position of inner cities, with much of Joburg

inner city still lagging the city's decentralised "suburban" areas.

I believe that the revival of the Cape Town inner city, now well-advanced

compared to the other major inner cities in SA, has demonstrated the importance

of an upmarket precinct which is an attractive playground for the "rich and

famous". One wonders what Cape Town would look like today should there have been

no V&A Waterfront development. I doubt whether nearly as many affluent people

would have lived in the city bowl today. What one also sees now is outward

growth of development from the core waterfront development, with the

International Convention Centre and some top hotels being built outside of the

waterfront precinct. Therefore, the precinct was the catalyst for development,

which has now "grown wings" as it moves towards the city.

I believe that over the years Durban is set to achieve a similar result, with

dramatic upgrading of property surrounding its own new waterfront development.

Johannesburg inner city, however, has no such upmarket precinct in the pipeline,

and rejuvenation efforts are arguably far more piecemeal. Nevertheless, on the

Western side of the city things are looking promising as major South African

lifestyle changes loom.

A rising shortage of office space in the Gauteng region is forcing many to

re-examine the inner city as an alternative. This can be expected to drive a

degree of building renovation for the purpose of office space, which in turn

will serve to bring more employees to the inner city on a daily basis as the

economic activity of the area grows.

We know, however, that the increased spending power caused by an increase in

working people in the inner city doesn't guarantee major benefits for the area.

Many corporates have everything that "opens and shuts" within their buildings,

and many employees almost never leave the building from the time they drive into

the underground parking until the time they drive out to go home.

Important, therefore, will be to raise the number of residents (as opposed to

employees alone) with high levels of spending power in the inner city. The

increase in traffic congestion in the major metros may ironically be on the

brink of providing a solution to this challenge through driving major changes in

living and commuting patterns. It will do this by raising the desire of an

increasing number of commuters to reside within closer proximity to their place

of work, because time on the road is effectively a cost.

The diagram below indicates a traditional living pattern of many more

affluent South Africans - out in the suburbs with significant commuting distance

and a holiday residence on the coast for some.

For many, traffic congestion may change this pattern of commuting and

property ownership. Instead of owning coastal property, which is not regularly

accessible for the "Vaalies", inland "platteland" property may become more

appealing, possibly along the Vaal River in towns such as Parys, or even in

towns such as Potchefstroom. These properties could then in many cases become

these people's primary residence, with their secondary residence being a smaller

one in the city, for instance a luxury apartment near to work. Already, many are

buying "platteland" primary residences, as witnessed by the massive residential

growth in Hartebeespoort Dam area. However, most of the commuters living there

commute daily back and forth. Far worse traffic congestion in coming years will

make this daily commuting option less attractive, raising demand for a weekly

commute to the secondary residence in the city.

The above pattern of living, on a large scale at least, is probably a good

few years away. What is happening right now, arguably on a far larger scale, is

a proliferation in demand for CBD accommodation, as both young professionals and

students attempt to keep their transport costs and time low. This, to me, is the

Joburg inner city middle-to-upper market that will flourish in the near term.

Much of this market (at least the white component of it) resided in Hillbrow in

bygone years. Many of these people head off to the suburbs later in life as they

start families, settle down, and desire more space. In future, an increasing

number may move from primary inner city residence to the abovementioned

platteland-CBD residence-place of work living/commuting pattern, thus retaining

an inner city base.

This group is more concerned with keeping its cost low than it is with luxury

retail and entertainment, and will move into the inner city in significant

numbers prior to the development of a precinct of the standard of a Cape Town or

Durban Waterfronts. This group can be seen in increasing numbers in apartments

in Braamfontein, which incidentally has the benefit of being near to Wits


This group of individuals can be expected to drive the improvement in the

quality of retail and entertainment in the city by raising the purchasing power

significantly. This would be the precursor for the arrival of significantly more

affluent residents, who as yet probably do not have the appetite for the inner


Later, expect an increasing number of middle-to-upper income people to

actually make the inner city their permanent residence. This will be driven by

the combination of an improving inner city environment along with a declining

average size of household. An increasing number of "double income no kids"

families are expected in future.

Important to realise, however, is that the inner city, with its high density

of economic activity and thus low potential transport cost for residents, will

continue to be like a magnet to SA's very poor.

A significant portion of SA's inner cities can thus be expected to be homes

for this group. However, improvements to the poorer parts of the inner cities

are at hand too, on the back of a significant amount of experience that

landlords in these areas have gained over the years in managing buildings.

Tight security measures, including access via finger print recognition and

strict control of visitors, are probably leading to reduced risk of building

hijacking and non-payment of rent.

Therefore, even for the troublesome Joburg inner city, the future looks

significantly brighter. While there is no single precinct being developed on the

waterfront scale, I expect that the establishment of a new Gauteng Government

precinct in the South Western side of the city will be the catalyst for

significantly higher demand for luxury residential and retail space in this

area, with the Gauteng Government area linking precincts run by some large

corporates to the south, and FNB precinct to the North in one enlarged precinct

that is well-managed, clean and upgraded. Suddenly, living in this part will

become far more attractive for high income individuals. The success of

Braamfontein to date should spill over into this area.

To the east of the city, it looks set to remain a lower income residential

affair, though improvements will be driven by far better building management

than in bygone years.

All-in-all, therefore, the future of the country's inner city property

markets looks brighter than it has in decades, driven in part by a mounting

congestion problem that is set to change the way that South Africans live, work

and commute.


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