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South African developers have been converting unused commercial spaces into residential units for quite some time now. However, according to Joff van Reenen, founding partner and lead auctioneer of specialist real estate auction company High Street Auctions, things are becoming a real challenge for developers and city planners post pandemic.
‘Although some office staff have now returned to the workplace, several large institutional and Fortune 500 companies that make up most commercial nodes have not. Figures from the latest Rhode’s Report estimates a three-to-five-year recovery period, before things get back to what they were pre-pandemic, so it is essential that alternative options are considered,’ he says.
Some developers are already following the New York model, working with hotel chains, to repurpose them into sectional title buildings since the pandemic reduced tourism. Although most of these are in Cape Town, there is also a growing trend to convert some key commercial sites into residential units and student accommodation.
For a rapidly urbanising country like South Africa, this is a big plus. Estimates suggest that just over 67% of South Africans are living in urban areas, and this is predicted to rise considerably, with eight in 10 South Africans expected to be living in urban spaces by 2050.
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Ticking the right boxes
Locations is everything when it comes to property and because they tend to be located right in the centre of big metropoles or coastal regions, commercial spaces have this in spades.
Justin Blend, owner of Africrest Properties, also adds that these buildings are usually well maintained with excellent infrastructure and great floor plans which is a bonus for developers. His company has quickly become the leader in office to residential conversions, having almost transformed a 30,000m2 PwC building in Sunninghill, into a 700-apartment flagship development knows as The Apollo.
‘We think it is the largest conversion ever in South Africa, and as we only rent out our apartments, we don’t have to worry about cutting costs and then recouping them later in the sale price,’ he says.
An office space like the Apollo will typically create units of between 12m2 to 50m2 and so lend themselves well for studios, one and two-bedroom units, making it more inclusive to lower income home seekers.
‘Given the state of the economy, more middle-class South Africans are looking for smaller, centrally located spaces to help reduce their cost of living. These dwellings tend to have lower rates and levies, reduced commuting times to offices and shops, and better access to transport links. This trend among the younger middle class to buy smaller, lock-up-and-go spaces in cities is really driving urban regeneration and boosting the urban residential property market,’ says Andrea Tucker, director of MortgageMe.
Meeting changing demand
Not everyone is cut out for city living though and especially not in every part of South Africa. Cape Town, as always, is leading the way by adapting to this model at a better rate than the rest of the country.
‘For a commercial space to work as a residential area, it needs to be reinvented into a vibrant hub that attracts people back into these environments,” says Van Reenen. “Woodstock in Cape Town is a perfect example of how uplifting a previously run-down area of the city can make it a trendy place where people want to live, work and play. We need more of these hubs in all major cities of the country,’ he says.
Brent Townes, commercial property chief operating officer for Lew Geffen Sotheby’s International Realty in Cape Town suggests that the most popular repurposed residential developments are those that offer flexibility, with a retail component on the ground floor for example.
Either option is a major project that takes time. There are lots of hurdles for developers to pass, including obtaining finance, re-zoning and renovating these highly specialised spaces, which is why very few operate in this sector. This means that despite being needed, transformation rates are likely to be slower than anticipated.
For now, it’s too early to predict how many people will return to the office fully in the next few months and whether companies will give up more office space. ‘This means it can be quite risky going into a revamp project as developers don’t want to have their residential development surrounded by operational offices later,’ says Blend.
