Can Cape Town cope with more foreshore commercial property investments?

Cape Town’s Foreshore has emerged as a key investment node, following the expansion of the Cape Town International Convention Centre, and other commercial property investments. This was highlighted in the recently launched State of Cape Town Central City Review 2019.

According to the report, the total value of property investments in the Cape Town CBD is R13.83 billion. These include proposed, planned, under construction or projects completed in 2019.

James Wilson

Increasing developments

The Foreshore precinct has seen a number of property investments including current and planned projects. Foreshore Place currently under construction is a R373 million mixed-use development. Telkom is planning a mixed-use project for an undisclosed amount.

Additional projects under construction include mixed-use developments namely The Rockfeller and Foreshore Place. Another project in the node offering competitive luxury apartments is The Duke, according to the report.

Coupled with its idyllic location, Foreshore will attract corporates moving from older buildings in the central CBD to newer developments.

“The rejuvenation projects and various mixed-use developments are a drawcard for investors. As a result, Foreshore is a sought-after property investment location,” says Kevin Hellyer, commercial director at Cape Space Properties.

Impact of mixed-use projects 

Amdec Group is developing Harbour Arch, a R15 billion mixed-use project. In 2017, the company launched No 1 Harbour consisting of 432 apartments with prices starting from R1.6 million.

The construction phase alone will create more than 20,000 jobs. Further employment opportunities will open in the tourism, hospitality and retail sectors on completion.

When fully developed, it will have a total 198,000m2 of usable space. This would include residential apartments, offices, retail, two 5-star hotels, conferencing facilities, a health and fitness club.

“Harbour Arch will offer Capetonians the opportunity to safely live-work-and-play in an iconic landmark setting. “It will also create an impressive and iconic new gateway to the City,” says James Wilson, Amdec Group CEO.

Commercial property market

As a result of the Covid-19 pandemic, currently the Foreshore isn’t experiencing demand for new office space which makes for a tough leasing market.

The lack of demand for office space has been made work by the fact that many people are working from home. Some tenants are reducing office space currently, says Dave Russell, director for commercial leasing at Baker Street Properties.

Foreshore office space renting for rent through Baker Street Properties.

“Vacancies are on the rise, and rentals are decreasing. As a result, tenants are looking for value, and have the upper hand in lease negotiations,” says Russell.

South Africa’s office market has seen an increase in oversupply, with vacancy rates hitting highs last seen in 2003. The Rode Report Q3 2020 shows that demand for office has contracted due to recessionary economic conditions since Q3 2019. Furthermore, the increase in working from home has added to the sector’s troubles.

Office rentals

To keep existing tenants, landlords are having to restructure lease renewals that are favourable towards tenants. Gross rentals have come down in almost all areas within Cape Town, says Hellyer.

According to the Rode Report, Cape Town decentralised rentals fell 2% y/y in nominal terms in Q3 2020. In real terms, rentals declined, and Cape Town is no longer outperforming other cities.

Gross rentals in Foreshore and CBD range from R91.43/m2 for C-grade and R187.22/m2 for A+-grade.

However, vacancies in Cape Town decentralised remain the lowest of all the major cities. They increased to 6.3% from 5.3% in Q1 2020.

Foreshore has growth potential due to current and future property investments will have an immense impact on the area. It is a popular destination for many top financial services and related businesses, according to brokers.

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