Opportunities abound in Cape Town CBD

03-11-2003

A gap is appearing between what banks are prepared to finance versus what investors are prepared to pay for obsolete buildings in Cape Town’s central business district.

Banks therefore need to change their valuation paradigms, because these “obsolete” buildings are where current opportunity lies for residential conversion, independent property broker Theodore Yach said at the recent Rode Conference at Spier.

“The current council policy of densification is in favour of property investment. There is more than enough space in the metropole for this.”

He says A and B corporate-grade office opportunities are getting fewer and fewer, and that Cape Town will soon run out of Agrade stock. Yet there are more than 300.000m² of obsolete buildings, with usually no parking and no air-condition.

“You can knock this down, or redevelop it. And a lot of them are suitable for residential conversion. Parking within 50 to 100m of the building is crucial, though,” Yach says. Investors are, by all accounts, snapping up these buildings. Yach says 26% of B-grade stock is vacant, but he believes developers have no appetite for financing further speculative stock, and that demand will exceed supply within the next 18 months.

“Available buildings will be gobbled up, but not every building will be suitable for residential conversion. Those with on-site parking could yield retail values of R15.000 to R17.000m², while others will only yield R4.000. But we need this range so that buyers can trade up.”

He warns that that strong body corporates will be needed to prevent slums from developing in the CBD. He recommends that property owners investigate managers carefully before appointing them.