The Cape Town central business district (CBD), which has recovered rapidly from the Covid-19 pandemic, attracted R3.555bn in property investment in 2022, including developments and redevelopments.
Businesses returned readily to the CBD as they saw the locality as a large concentrated and active market for their goods and services.
This is according to the 11th edition of the State of Cape Town Central City Report 2022 — A Year in Review, published by the Cape Town Central City Improvement District (CCID) and released on Wednesday.
“As business, we have learnt to collaborate to achieve more — the accessibility and active commitment of the city and provincial governments to ensure the city works drive investments into the CBD,” said Rob Kane, CCID board chair and CEO of unlisted Boxwood Property Fund.
Kane said property investments in 2022 fell short of the R5.717bn recorded in 2021 due to the pandemic and uncertainty about the future, given rising interest rates and slow economic growth.
The R3.555bn includes projects that were under construction, completed, planned and proposed. Among these were 44 commercial, mixed-use and residential projects such as Wale Street Chambers, Neighbourgood Reserve and Telkom Exchange.
According to the report, the number of businesses operating in the CBD rose from 2,981 in 2021 to 3,116. Retail businesses, which dominate the central city economy, grew from 1,163 to 1,243.
Kane said the macroeconomics make for a tough environment for doing business. Despite this, the CBD continues to attract investment, a trend likely to go on.
He said stable electricity supply and reduced load-shedding periods is another possible driver for investment in the inner city.
Quintin Rossi, CEO of Spear Reit, a Western Cape-focused fund with assets predominantly in Cape Town, said they see good growth opportunities in redevelopment and refurbishment, while managing existing assets to improve the underlying cash flows, given prevailing high construction costs.
“Our focus has been in the industrial and retail subsector. We believe valuations across the property sector have held up well due to capital flows into, and good governance in the Western Cape,” said Rossi.
Kane said the office sector in the central city was steady in 2022, with vacancies decreasing for A-grade space, considered top drawer.
As more businesses returned to the CBD, A-grade offices attracted corporate occupiers at higher rentals, in some instances achieving more than R200/m2.
The CBD has the largest share, nearly 40% of all office space in Cape Town, 24.4% of A-grade space. It is second to Century City with 29.8% of P-grade, or premium, office space.
Rossi said the city has seen an increase in traffic volumes and the number of cars in office buildings along with leasing activity, resulting in reduced vacancies.
“The Cape Town CBD has seen a notable decline in office vacancy rates with letting activity in premium and A-grade reducing the most as small, medium and large users return to the office,” said Rossi.
The increase in uptake of space by multinational business process outsourcing operators who choose the city as a preferred locality has also helped to reduce vacancies.
Rossi said vacancies across their office portfolio had continued to show a notable drop in the first six months of 2023.
“We view this as a positive signal that may create growth opportunities for Spear once the interest rate cycle starts to taper,” said Rossi.
Semigration
Semigration, the movement of people from one city or province to another, contributes to investment in the central city and the Cape metropolitan.
Rossi said semigration trends continue to manifest as a tailwind for Spear across asset types, with many taking up space because 26 of their 28 properties receive their electricity supply from the City of Cape Town, which has reduced stages of load-shedding.
Kane, who initially thought semigration was a hype, said Cape Town is experiencing real migration of skilled people along with digital nomads who are boosting the skills base.
The effects are visible in all property sectors — an encouraging sign as these individuals are economically active with potential to create jobs, making for a more sustainable city in future, said Kane.
“Businesses and people will continue to relocate to Cape Town because it offers an unrivalled lifestyle and is business-friendly,” said Kane.
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