Are residential values in CBDs set to outperform the suburbs?

08-02-2006

With peak-hour traffic jams in metropolitan areas becoming worse by the day, it would seem reasonable to expect that the demand for residential units closer to work opportunities would be on the increase. But this does not necessarily make it a foregone conclusion that CBDs will be offering buy-to-let investors better value than the suburbs over the next year, says Erwin Rode, CEO of Rode & Associates.

When weighing up the options, investors should keep in mind two important factors that set South Africa’s cities apart from first-world cities worldwide.

The fact that our cities do not have effective public transport systems to get millions of people in and out of the CBDs, does put upward pressure on demand for living space in South Africa’s few healthy CBDs. One can expect that the wealthy people who can afford it will buy apartments in and on the periphery of these CBDs to be close to work or to let those apartments to people wanting to be close to work.

On the other hand, though, the fact that South Africa’s work opportunities are more spatially diffused than in countries abroad, increases demand for homes in the suburbs. For that reason, Rode doesn’t expect demand for CBD space to ever reach the kind of levels of a city like London, for instance.

Rode says these two factors seem to counterbalance each other in most metropolitan areas, so that he doesn’t really expect the value of residential units in the one to outperform the other. The only exceptions are the very vibrant CBDs of Cape Town and Sandton, where the long-term prospects seem to be particularly bright.