Growthpoint SA CEO: Sandton remains vibrant property hub despite market challenges
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Sandton is still a vibrant property node, Estienne de Klerk, the South African CEO of Growthpoint Properties, said this week.
Growthpoint is a JSE-listed real estate investment trust.
“There’s also an urban legend that Sandton has been written off as an office node, which I can promise you is not the case,” he said.
De Klerk says what makes Sandton, which has the status as Africa’s leading financial district, more complex is that knowledge-based businesses occupy this node.
This includes banks, lawyers, audit firms, asset managers, and financial advisers, among others, he explained.
The office letting market is very competitive, with some corporates sub-letting their space in an effort to reduce costs.
Compared to its investors, Growthpoint has the biggest office portfolio in Sandton at roughly 360 000 square metres, De Klerk added.
"It’s been pretty competitive, and it’s not just real estate players in this space. I think another interesting point is that, other than Growthpoint, there aren’t many major players left in the listed office market. It’s a funny market, and you can already see it playing out in the coastal regions. There’s not much competition remaining, so you’re going to be competing with developers. They can come in when the market hits a certain pricing point, which is the cost of new development," he said.
De Klerk explained that to put that in context, for an existing office one pays around R190 a square metre. However, for a new development, you’d need to pay closer to R300 per square metre - a significant difference.
Despite the sluggish economy, Growthpoint brought its office vacancies down by a third last year, he said.
In the coastal markets, there was growth in office rentals. De Klerk said, “I would argue that we will be doing the highest rentals we have ever done in that portfolio. That would be the Western Cape and KwaZulu-Natal.”
Last month, Growthpoint announced that it was building a more than R2 billion, 400-unit residential and retail development, Olympus Sandton, in partnership with luxury residential developer Tricolt.
Olympus Sandton will be situated in the mixed-use Sandton Summit precinct, anchored by the Discovery head office on the corner of Rivonia Road.
The group said at the time that the development was well-timed for the reawakening of the powerhouse that is Sandton Central and aligned with its accelerated transformation into a vibrant neighbourhood as it evolves with the trend of people wanting to live closer to workplaces and amenities, offering an exceptional mix of residential, office, retail, and other types of properties.
Growthpoint gave an update on the development during a media tour held on January 29, saying 160 units had been sold out of the first tower’s 283 units: 60% sold by area and more than 70% sold by value. It is a remarkable achievement, as the sales haven’t been launched publicly yet.
The company has already sold three penthouse suites, selling in the region of between R14 million to R17 million.
This comes as a second tower is on the cards after the first tower is sold.
Growthpoint spoke further about its investment-grade commercial property development, such as its residential projects, including the office-to-residential conversion to BlackBrick Riverwoods. It was originally an office owned by Airports Company South Africa that was developed by Growthpoint and converted into a 254-unit residential property. Hotel rooms make up 91 units, and the other 163 units consist of 31% studios, 57% one-bedroom units, and 11% two-bedroom units.
The one-bedroom studio units had a price point of around R690 000 and were selling the fastest.
Property development challenges
He said the big challenge is economic growth. If people are employed, they need more space.
One of the biggest challenges in Sandton, De Klerk said, was that over the past five years, the government had been forcing expats to leave South Africa due to visa issues. That had led to a “massive slump” in the local residential market.
However, De Klerk believes with the Government of National Unity, the visa backlog will be fixed and will take roughly another two years to resolve.
Another challenge Growthpoint is dealing with is the Johannesburg municipality, which is “aggressively increasing rates and taxes while reducing services.”
ESG
De Klerk also touched on Growthpoint’s introduction of a clean, green energy benefit scheme called e-CO2 at around 10 of its properties in Sandton, Johannesburg, which was announced last year.
Growthpoint will deliver green energy to its office buildings through wheeling, reducing carbon footprints and generating Renewable Energy Certificates for tenants.
This is important to listed clients offshore who have to report on their carbon footprint.
He said the benefit of this scheme is also that Growthpoint has locked in a lower escalation rate of prices than Eskom.
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