The Economic Benefits of Mixed-Use Development
Gauteng and the Western Cape are dominant forces within the financial, real estate and business sectors, as can be seen from Statistics SA’s 2006 to 2011 reports on the regional distribution and relative size of different industries, by economy.
The largest contributor to the real estate sector during this period – including property-related revenue streams – was Gauteng Province at 41.1%, followed by the Western Cape at 19.7%, and KwaZulu-Natal at 13.6%. The manufacturing sector in Gauteng followed closely at 40.5%, with a much lower Western Cape contribution of 14.6% and 21.6% in KZN.
Another presentation in the same report, of the relative size of the provincial economy of the same sector, however, saw the Western Cape dominate in size at 26.6%, followed by Gauteng at 22.8 % and the Eastern Cape at 18.6%.
This is also illustrated in Cape Town’s desirability as an investment destination, according to the Cape Town Partnership and economists. This is largely thanks to productive revenue streams in the city. National investors and developers who take a longer view are attracted by the sound management of tax revenues derived from commercial property. Actual and projected income from the real estate and related industries can be expected to feed into public service delivery, infrastructure development and, in some cases, additional spending on culture and heritage.
The economic contributions of large mixed-use developments located close to major cities is of significance to the built environment and retail sectors. The economic dominance of Gauteng and the Western Cape continues as South Africa’s listed real estate sector is drawn to areas of population growth, productivity and increased consumer spending, most notably among the country’s growing middle class.
Innovative solutions as a result of massive capital investment can be seen as new mixed-use developments increasingly provide a broader accommodation mix to include office, retail, hospitality, entertainment and residential space.
Cape Town’s V&A Waterfront, a joint entity between South Africa’s largest REIT, Growthpoint Properties, and the Public Investment Corporation (employee pension fund) has for more than a decade illustrated the benefits of sound mixed-use development and long-term planning. V&A CEO David Green said: “With GGP as the provincial equivalent of GDP, the total contribution to Western Cape GGP increased from R8.99bn in 2002 to R29.3bn in 2014. Consistent growth in GGP as the provincial equivalent of GDP over the past 10 years – of 11% year on year – illustrates the vital role played by small and medium enterprise, that has since 2002 added over R227bn to Western Cape GGP.”
The knock-on effects that benefit local residents are noted in the substantial rise in direct and indirect job creation in Cape Town, tying in with the government’s position on job creation and growth in the small-business sector. An increase in total jobs of 57% since 2002 is estimated to have added a nominal R65 billion to indirect household income in the city.
Retailers who rely on consumer spending and pay premium rentals to attract top brands and optimum foot traffic have been rewarded with double-digit retail growth for the fourth consecutive year. Benefits to the real estate sector, says Green, lie in the significant impact on property values that relate to growth in numbers of a balanced mix of fixed and variable tenants, who are increasingly less dependent on location and tourism to support a sustainable business model.
While 2013/2014 research does not include updated estimates on impacts by the V&A on property values in the immediate vacinity, key findings show a price premium on property within a 1.5km radius of the V&A Waterfront.
Economic estimates are that the growth of property values of R2.8bn – or 23% – would have existed in the absence of the V&A Waterfront. Independent economist Barry Standish said the V&A Waterfront’s growth prospects and new developments are set to impact economies at all levels and could contribute a cumulative R223.7bn to nominal GDP by 2027.
Proximity is a major factor in new innovations in Gauteng, in response to the demand for convenient access to quality tenancies in secure surroundings. The impact of traffic congestion on national roads and crime in residential areas that result in commercial vacancies further highlights the need for close proximity to business, employment, public transport, good education, and entertainment facilities. Investor confidence in the Gauteng economy was illustrated in 2013 at the launch of the mega-urban concept development of the Waterfall commercial mixed-use precinct and Waterfall City, as the planned central business district. The commercial development rights of the Waterfall project are fully owned by the JSE-listed capital growth fund Attacq, which works closely with its development partner, Atterbury.
The construction of the R160m highway overpass bridge to improve Midrand traffic is one of several project solutions initiated by Attacq. CEO Morné Wilken said that the Waterfall City commercial, industrial and retail property components, which include the 25-storey PwC headquarters measuring 40,000m2, a super-regional shopping centre and an upmarket private residential estate are set to generate various income streams for the fund. “The 131,000m2 Mall of Africa, SA’s biggest single-phase mall development, is the largest project and anchor development within Waterfall City. Mall of Africa, with a total development cost of R3.2bn, is set to be a major catalyst for further growth at Waterfall when it opens in April next year.”
Additional future benefits, over and above growth in employment and small-business enterprise, of large-scale developments are a host of investment opportunities. International standards of city developments show industries likely to be lured by a healthy scale of economics usually hail from the financial and business services sectors, within the fields of technology, telecommunications and information solutions.
The overall economic contributions of mixed-use developments in South African cities form a substantial and promising component that will attract future growth in real estate.
Words: Anna-marie Smith