R39,5m for Dbn commercial property

A prime located commercial investment property and business located in Durban's city centre has come on to the market at R39,5m. Situated on the corner of Dr Pixley Kaseme (formerly West) Street and Joe Slovo (formerly Field) Street and comprising a gross lettable area of over 2,700sqm, this sectional title office accommodation consists of the first three floors of the building 78 on Field and has 51% majority voting rights of the body corporate.

"With leases running till 2014, it has two blue chip tenants, Mr Price and Absa, as well as a sports shop. This property yields an 11,5% return with rental escalations of 8,5% per annum," says Taryn Muller, commercial sales agent for Pam Golding Properties (PGP) Durban.

"With the reduction in interest rates there are more willing – if somewhat cautious – buyers, but sellers remain fixed on prices which are not realistic given the current economic situation.

"In terms of leases, we're seeing a trend towards tenants downscaling or closing down superfluous offices, branches, factories or warehouses and seeking smaller, more cost effective spaces. Savvy buyers are looking to acquire good going concerns with sound yields of 11-12% as investments, with quality tenants, long leases and sound intrinsic property values.

"In addition, there are also cash buyers seeking buildings to owner-occupy, but here again sellers need to be more realistic and seriously consider cash offers," says Muller.

She says in the Durban CBD there's an opportunity for bullish investors to take over buildings and refurbish them under the UDZ (Urban Development Zone) tax incentive.

Rental rates are varied – in the Durban central area office accommodation in good quality buildings ranges from R95-R105 per square metre depending on location, retail space is priced between R125 and R400 per square metre depending on location, size and the nature of the business. In the busy area around Dr Pixley Kaseme/Joe Slovo/Anton Lembede (West/Field/Smith) Streets the rates average around R150-R185 per square metre.

"The banks' very stringent lending criteria remain a major stumbling block, coupled with the fact that they are finding less value in property and insisting on higher deposits. Financing needs to be approached creatively with each client and property and schemes more individually considered which are based on all the information, the quality of the client and on each opportunity presented. In other words, the business plan should be taken into account and each scheme treated as a long-term investment rather than as a risk, and in this way arriving at a partnered solution with the buyer," says Muller.

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