Approaches to arrest decline

01 Mar 2002 - Business Day -

Intro
Vacancies must be addressed

Vacancies must be addressed

TURNING around the growing number of vacancies in declining commercial office nodes remains a key challenge for the property management industry.

A fair proportion of SA's commercial property falls into C- and D-grade categories.

Dieter Helmrich, MD of 3d Properties a wholly owned subsidiary of RMB Properties believes that property managers have rarely adopted the appropriate hands-on and proactive management techniques necessary to manage and add value to these types of properties.

Consequently they have tended to shy away from them in favour of more lucrative A- and Bgrade ones. C- and Dgrade properties are typically poor performers, located in CBDs and older industrial areas that have low or even negative growth.

Helmrich says the decline in property stock is due to many factors. Among these is the lack of coherent town planning that allowed the continual development of greenfield sites at the expense of older, established nodes and CBDs.

A lack of adequate cleaning, crime prevention and enforcement has resulted in many commercial nodes falling into a downward spiral.

The continual densification of established areas, growth of strip developments and new commercial nodes means there is a constant supply of new space to attract tenants.

These factors create a knock-on effect.

As tenants are lured to newer areas, vacancies grow, rentals fall and standards of cleanliness and security drop.

'As a result the buildings begin to deteriorate and the value plummets,' Helmrich says.

'In most cases landlords are not equipped to manage the change and the most common course of action is to put the building on the sales list with the hope of trading the building out of their portfolio.'

His company has implemented a strategy of turning property managers into on-site operators. Staff are assigned to re-tenant and re-energise buildings by using innovative and strategic solutions, while keeping the process as simple and time-efficient as possible.

'The operators are encouraged to think like entrepreneurs and to treat the properties as their own businesses.

'They are encouraged to get to know their tenants in order to address and solve problems quickly. Success is rewarded with commissions.'

An RMB Properties administration team supports the managers in order to give them more time to stay out in the field, meet tenants and close deals.

An interlinked IT system allows a property manager to input a leasing decision in the system and see the ripple effect this will have on the budget, the valuation of the building and ultimately the composite returns of the entire portfolio.

In addition to understanding the financial consequences of leasing deals, the operators seek to fully understand the prospective tenants and their business.

Each prospective tenant is reviewed according to his financial position, his business plan and details of how he intends to trade.

Bill Ward, director of commercial and industrial property for Colliers RMS, says that there is concern about the number of vacancies in the Sandton area. In particular, this affects older buildings that were previously occupied but that have borne the brunt of the take-up in new developments.

However, he says, there has been a welcome rise in the take-up of office space in Randburg, while Braamfontein also seems to be experiencing a degree of resurgence although more at the lower end of the rental scale.

Parktown is also beginning to show a slight revival.

'In this industry one is faced with a pool of tenants that doesn't necessarily grow that much in proportion to the number of buildings that have been built,' says Ward.

Of the newer established nodes, Illovo continues to do well, he says.

'It is a contained node, which is one of its biggest strengths in that concern about traffic congestion has not materialised because of the way it has been structured.'

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