This international real estate trend is currently proving extremely profitable for investors in Cape Town

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Two sectors that are significantly leading the current commercial real estate curve in South Africa are smart redevelopment of underutilized commercial sites and industrial real estate investment.

Greg Dart, director of High Street Auctions, said the country’s commercial real estate landscape perfectly mirrors the global market. “Fund managers are already making tough decisions about their portfolios, as workplace changes lead to permanent changes in commercial real estate paradigms.”

He pointed to a recent Gallup poll in the US that noted that even if business districts there begin to recover, 37% of current office space in America is likely to be vacated as employees switch to remote work.

“In South Africa, the percentage of permanent remote workers may not be the same as the US, but even before the pandemic we had quite a number of underutilized office buildings and vacancies have been rising since then.”

Dart said companies have audited their real estate portfolios and released a selection of non-core assets for auction. “The timing couldn’t be better for developers looking to capitalize on the national and international redevelopment trend, but as always with these investments, location is everything.”

As an example, Dart noted three office buildings in the heart of Bloemfontein’s CBD going up for auction in High Street’s multi-property auction on August 11, which have already caught the attention of bidders:

  • The 8,567 sq. ft. African Life building at 44 St Andrew Street, which consists of ground floor shops and five floors of office space;
  • The Trustfontein & Transtel Buildings at 149 to 151 St Andrew St. The Trustfontein consists of ground floor shops and five floors of office space, while Transtel is a single storey building with retail and storage components; and
  • Thuto House at 155 St Andrew St, a five-storey office building.
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“Bloemfontein has a much talked about student housing crisis and with six tertiary education institutions surrounding these buildings, they are clamoring for conversion to student housing,” Dart said.

The largest of the nearby campuses is the Central University of Technology, with more than 21,000 students and only about 5,000 in accredited on-campus and off-campus accommodation.

“In addition to the smaller colleges like Rosebank, Boston, Damelin and numerous FET institutions, there are two University of the Free State campuses further down the road with more than 33,000 students and a desperate housing shortage.

“Bloemfontein is not the only city with these reconversion opportunities, given a recent report from the World Bank Group International Finance Corporation which noted that the gap between supply and demand of student housing in South Africa is already more than 500,000,” he said.

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This trend is also international, with DigsConnect saying last month that global investment in purpose-built student housing exceeded $16 billion in 2018, and “despite the pandemic, this asset class is resilient and still growing rapidly as student enrollment increases every year” .

Dart said mixed urban commercial redevelopment is another international trend that has proved extremely profitable for real estate investors, especially in Cape Town.

“As with student redevelopment, location is critical, which is why we’ve had so much interest in the Salt River city block going up for auction on August 11. Bordered by Hopkins, Yew and Aubrey Streets near the Salt River Circle, the large triangular lot is in the heart of a vibrant rejuvenation zone and just minutes from the CBD.

“The property is currently occupied by low-rise light industrial buildings, but with mixed-use zoning and a demolition permit already granted, it has plans for a state-of-the-art live-work-play design building,” said Dart.

The proposed development includes four basement parking and a ground floor with large retail, restaurants, workshops, micro-stores, a co-working space and a community learning center, plus 276 apartments spread over seven floors.

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“A very smart investor is going to leave the auction with a dream project, because so much of the preparatory, time-consuming hard work has already been done on this development.”

Dart said the smart money is also still looking for industrial real estate, which has been the strongest commercial investment during the Covid pandemic.

His views are supported by FNB Commercial Property Finance strategist John Loos, who believes industrial real estate remains an attractive investment.

“Industrial real estate is the most affordable real estate class and arguably the most adaptable, while also benefiting from an acceleration in the logistics sector for more online retail. Relatively; therefore, this class has quite a bit to offer,” he said, commenting on the industry’s expected performance this year.

Dart said High Street will auction a variety of industrial properties across the country in August, from small light industrial properties suitable for owner-occupier SMEs to large warehouses ideally geared to the logistics sector. “Industrial real estate remains strong and now is a good time to enter this market.”


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