The commercial real estate sector is constantly evolving, shaped by economic shifts, interest rate movements, technological advancements, disruptions like the pandemic and changing consumer behaviours, with forecasters predicting that the commercial real estate landscape is poised for even more transformation.
So says Brent Townes, Commercial Property Chief Operating Officer for Lew Geffen Sotheby’s International Realty in Cape Town, adding the commercial sector worldwide has changed significantly in the past five years alone and is a very difference space these days than it was a decade ago.
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"It’s important for investors and real estate professionals to stay abreast of these fast-changing and emergent trends in order to navigate the evolving landscape and leverage emerging opportunities for success in the years to come.
“It’s impossible to make astute decisions about medium to long-term investments if you have no idea of the lay of the land and with things changing so rapidly these days, it’s essential make an effort to stay informed.”
Townes offers insights into key current and emergent trends that will shape the future of the commercial sector:
The rise of e-commerce and last-mile logistics
The growth of e-commerce has had a profound impact on the industrial real estate market, and this trend is expected to continue – and grow - in 2024 and beyond.
The need for strategically located warehouses and distribution centres and mini hubs to facilitate efficient last-mile delivery will remain high and developers and investors are already repurposing existing properties or constructing new facilities to meet the demand of e-commerce giants and third-party logistics providers.
The focus will be on developing flexible and technologically advanced spaces that can accommodate rapid delivery requirements and increased automation.
A case in point is the need for an intact cold chain that moves goods from farm to processor to packing to loading and into port – all of which should be integrated, whether on a blockchain or in a digital format.
Evolving work models and flexible spaces
The office real estate sector is undergoing a paradigm shift as remote and hybrid work models gain prominence and businesses are likely to continue to adopt flexible work models, leading to an increased demand for flexible office spaces.
Coworking spaces and hybrid models that combine remote work with occasional office use have become more prevalent and office designs will focus on creating collaborative and engaging environments that foster innovation and employee well-being – this will continue.
Landlords and property owners will need to adapt their spaces to cater to these changing work dynamics, offering amenities like shared meeting rooms, technology infrastructure, and community spaces.
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Repurposing and experiential concepts
The retail sector has been significantly impacted by e-commerce, leading to a need for creative strategies to repurpose retail spaces and we are already seeing this trend gaining momentum, with developers transforming vacant spaces into mixed-use developments that combine residential, office, and entertainment components.
The success of live, work, play precinct development is being guided by a need for a more integrated society on the one hand and a cost-effective approach for workers to cut unnecessary travel costs on the other.
Going forward, the focus will be on creating vibrant, multifunctional spaces that offer unique experiences and cater to evolving consumer preferences. Retailers will increasingly integrate online and offline channels to provide a seamless shopping experience, while innovative concepts like experiential retail, pop-up shops, and community-driven spaces will thrive.
Technology integration and smart building solutions
Technological advancements will continue to shape commercial real estate and the integration of smart building technologies will become increasingly common, enhancing energy efficiency, security and tenant experience.
Building management systems will monitor and control various aspects of a property, optimizing resource usage and automating maintenance processes and artificial intelligence (AI) and data analytics will provide valuable insights for property owners and managers, enabling them to make informed decisions and improve operational efficiency.
In addition to use of smart buildings and the use of alternative building technologies, is the impending digitalisation of the Deeds Office – something that has been touted for a few years.
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Sustainability and ESG initiatives
Sustainability and environmental, social, and governance (ESG) considerations have become integral to commercial real estate strategies and we can anticipate an increased focus on sustainable building practices, energy-efficient designs, and renewable energy sources.
Green certifications, such as LEED (Leadership in Energy and Environmental Design) and WELL Building Standard, will continue to be sought after by investors and tenants alike and commercial real estate developers will prioritise sustainability to attract environmentally conscious occupiers and align with global sustainability goals.
Demand for life sciences and healthcare real estate
The life sciences and healthcare sectors have experienced rapid growth and innovation, driving increased demand for specialised real estate.
We can expect a surge in the development of life sciences and healthcare properties, including day hospitals and step-down facilities, research facilities, pathology and biotech labs, and medical office suites – this is despite the looming NHI transformation which will be challenged legally, politically and from vested interests.
The ongoing focus on healthcare infrastructure and the need for advanced medical research facilities will continue to drive this trend, presenting lucrative investment opportunities in these specialized real estate segments.
“To thrive in this evolving environment, commercial real estate professionals and investors must remain agile, adapt to changing demands, and leverage emerging opportunities,” concludes Towns.
“By staying informed about these trends, industry stakeholders can navigate the commercial real estate landscape successfully in the years to come.”
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Commercial development spawns residential growth in uMhlanga
Apart from contributing to local economic growth, commercial development in uMhlanga on the KwaZulu-Natal North Coast has fostered the ongoing development of new residential and mixed-use projects in the area, says Pam Golding Properties area principal, Gareth Bailey.
Bailey says: “Accessibly located just north of Umhlanga, King Shaka International Airport opened its runway in 2010, catalysing demand for our coastal property market – both from a residential and commercial perspective. In recent years we’ve seen the expansion of uMhlanga Ridge and other new commercial and business developments in the surrounds which have had a major positive impact on the demand for apartment living.
Modern apartment with amazing sea views in Umhlanga Central for R6.950 million
“In addition to a high demand for residential units among locals and leisure buyers, there is the added convenience for inland purchasers, investors and upcountry commuters of owning a property at the coast, given that many regional business headquarters are on our doorstep. At present our estimate is that in the vicinity of Gateway Shopping Mall, local buyers comprise approximately 70% of purchasers, with more of an even mix of locals versus upcountry buyers on the sought-after beachfront."
“However,” says Bailey, “we have seen consistency over time, with 50% of owners having stayed in their primary residences for 11 years or more. Quite likely influenced by Covid, when many reconsidered their priorities, we are seeing more people seeking to move to the coast for a better quality of life. Certainly, with the introduction of Airbnb and maturing service providers in this space, we have noticed an increase, albeit modest, in buyers purchasing leisure apartments.”
Reflecting on development in uMhlanga over decades, Bailey says although it now feels like an eternal feature, Gateway opened its doors in 2001 in the days when only lush green sugar cane occupied the land in front of the shopping centre, spanning the area from Umhlanga Rocks Drive down to the M4 in the east with Umhlanga Manors to the north and the M41 to the south.
Bailey says: “In those days, and around Gateway, there existed only a smattering of commercial buildings including the Crescent Shopping Centre. There were no residential developments except for Horizon Views which still overlooks the traffic circle adjacent to the Sharks Board. And while the area between Gateway and the N2 had been mostly cleared for development, the land between Gateway and Prestondale and everything west of the N2 was also still under sugar cane.
“Around this time, the Umhlanga Rocks Hotel, a well-known landmark in the area, was demolished to make way for The Pearls development. The iconic Oysters complex (Pearls, Quays, Rock and Schelles) was developed from 2004. The old Oyster Box Hotel was renovated in 2009, which was the same year that construction commenced at Beacon Rock and Ridgeside Office Park.”
In 2011, One on Herrwood commenced construction and the Oceans development, featuring the 5-star Radisson Blu Hotel, began construction in 2016 on the old Post Office and Umhlanga Country Club site. Many other residential and commercial buildings like Umhlanga Arch (2017) have since sprung up mainly around the greenfield areas of Gateway and the Umhlanga Ridge and Ridgeside precincts.
Contemporary living in Umhlanga Ridgeside for R3.895 million
Reviewing residential developments over the years from a return on investment perspective, Bailey notes that in 2008 two-bedroom apartments in The Pearls sold for about R1 million, while today they will sell for over R4 million, and three-bedroom apartments which fetched around R1.5 million can now be acquired for over R8.5 million.
“Similarly, in One on Herrwood, one-bedroom units which sold for R500 000 in 2012 will sell for over R1.5 million today, while two-bedroom apartments that sold then for R750 000 will go for R2.5 million. Currently, frontline apartments on the Promenade in uMhlanga sell for approximately R50 000 per square metre.”
Sound advice from Bailey for buy-to-let investors is that rental yield is stronger with smaller units than with larger units. “Therefore, investors are advised to acquire more smaller units than fewer larger units if they wish to maximise income return. For example, we have seen an investor in the Oceans Raddison Blue Hotel Residences – the privately owned apartments above the hotel – acquire as many as four apartments.
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“However, some investors buy to let with the intention of relocating from Gauteng and retiring in the unit when they are ready. In this instance, they need to balance their ultimate need for space with their priority of generating income yield in the interleading years. We also have investors who are interested in generating Airbnb income when they are not using the apartment themselves, but enjoy the flexibility of staying in the apartment when they are in town.
“In this regard, a brand new development, York Sanctuary Private Estate overlooking a greenbelt in uMhlanga Ridgeside and with ocean views, is an ideal proposition for a permanent residence or leisure getaway with Airbnb potential. The greenbelt provides wildlife and recreational activities such as trail running and fishing, right from your doorstep, while the Estate includes a luxurious clubhouse, gym, swimming pool with sweeping sea views, cycling/walking/running paths, sauna, fishing jetty, children’s outdoor play area and a community greenhouse. The one, two and three-bedroom apartments, which are priced from R1.9 million, R2.6 million and R3 million respectively, enjoy an abundance of natural light with floor-to-ceiling glass, while on-grade parking affords the convenience of parking on the same level as your apartment.”
Taste of Italy in Umhlanga for R12.5 million
Bailey says: “One thing is apparent – by its very nature, frontline beachfront property is limited with little opportunity for new development, so it makes for potential sound residential investment.”
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