Transnet’s plans to revive Carlton Centre and Adderley Street Precinct could revive city centres
The state-owned company Transnet wants to spruce up Johannesburg’s iconic Carlton Centre. And another redevelopment is on the cards in Cape Town. Transnet now sees itself as a major real estate investor.
When Maria Ramos was Transnet’s CEO in the early 2000s, she launched an initiative to review properties owned by the logistics company with a view to selling some of them to raise capital.
After all, it doesn’t make sense for a company like Transnet – whose main operations involve running freight rail networks and ports – to also manage a portfolio of properties in the retail, office and residential markets.
By 2007, Ramos’ review pointed to a need for Transnet to sell several properties, including the Carlton Centre, an iconic property in downtown Johannesburg that stands 223m high and has dominated the city’s skyline for around 50 years.
Transnet considered the Carlton Centre, which it bought from Anglo American in 1999 for R33-million to use as its headquarters, as non-core to its operations – thus starting a process in 2007 to engage potential buyers.
A year before this process started, Transnet successfully sold the V&A Waterfront in Cape Town for R7-billion to several investors, including London and Regional Properties (a private equity investor), the Emirati investment firm Dubai World, and several South African black economic empowerment investors. (Today, the V&A Waterfront is owned by the Public Investment Corporation and Growthpoint Properties.)
As Ramos was engaging potential Carlton Centre buyers in 2007, the global financial crisis struck, forcing many investors to put their purchase decisions on hold. By 2008, Transnet put the sale of the Carlton Centre on ice until economic conditions in South Africa improved.
Economic conditions have fluctuated since then, and Transnet is still the owner of the Carlton Centre – without a demonstrable plan to sell the property.
Fixing up the Carlton Centre
Transnet is instead engaging private sector property developers that it can partner with to refurbish the Carlton Centre. The building comprises 68,000m² in office space, a 53,000m² shopping centre, a 663-room hotel known as the Carlton Hotel, and another small hotel (63 rooms).
The Carlton Centre needs to be spruced up. The area in which the building is located is a hotbed of crime and refuse can often be seen strewn on pavements. The Carlton Hotel closed its doors in 1998 and is suffering from neglect, and the busy shopping mall inside the Carlton Centre could use a fresh lick of paint.
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On 29 July, Transnet issued a request-for-information document which informs property developers and investors about its intention to redevelop the Carlton Centre. It has invited these players to submit proposals for how they will spruce up the building. The document says Transnet wants to “gauge market appetite” for property developers and investors to potentially redevelop the Carlton Centre, in partnership with the state-owned entity.
Transnet has also targeted another building it owns in downtown Cape Town. The Adderley Street Precinct, like the Carlton Centre, has signs of decline, boasts an outdated façade and stands empty. The building, located at the bottom of Adderley Street overlooking Heerengracht Street, is partially occupied (about 43%) by a handful of tenants, mainly Transnet, the Passenger Rail Agency of South Africa, Metrorail and Rovos Rail Tours.
Transnet has also issued a request-for-information document for the Adderley Street Precinct.
Transnet sticks to property ownership
What is clear from the Carlton Centre and Adderley Street Precinct redevelopment plans is that Transnet still wants to be a major real estate player, instead of focusing purely on its core freight rail and port operations.
If Transnet presses ahead with the redevelopment plans and modernises its buildings, the company has a higher chance of attracting more tenants that pay higher rent, which will generate additional income for the parastatal.
At this stage, it is not clear how much the redevelopment projects will cost or how much money will be injected into the respective central business districts. But how it works is that Transnet will have to fork out about 50% of the development costs, with the balance paid by development partners.
Daily Maverick understands that before the start of the pandemic, Transnet carried out an independent valuation of the Carlton Centre, which valued the building at between R400-million and R600-million. It is expected that the redevelopment costs might inject about R1-billion into the economy of downtown Joburg.
Whatever the redevelopment costs, industry players view it as a win for the area, which has gone through several cycles of decay since the 1980s.
Lawyer-turned-real-estate-developer Gerald Olitzki says the need to redevelop the Carlton Centre indicates that the Joburg CBD is not in decline, but is evolving.
Olitzki is a fierce defender of Joburg’s CBD and challenges suggestions that there is no hope for the area. He is considered an early pioneer of urban renewal in the CBD through Olitzki Property Holdings, a firm he founded.
When many white-owned businesses packed up shop and moved to the northern suburbs during the 1980s, Olitzki bought his first run-down office building in 1989 in Van der Bijl Square (now Gandhi Square) and restored it to its former glory.
That initial purchase morphed into a full-scale revamp of Gandhi Square as Olitzki and other property developers bought surrounding buildings to create a retail and office precinct that runs from the Magistrate’s Court, along Main Street, through Gandhi Square and up Fox Street to the Carlton Centre.
Since the Covid lockdowns ended, Olitzki says he is seeing a “massive return to the city”.
“Companies that I bought buildings from many years ago, because they left for the north, are returning to the CBD. The likes of Old Mutual, Nedbank and Hollard have taken space in many of our office buildings and brought some of their divisions back to the city,” he says.
The affordability of Joburg’s CBD is a drawcard, where a newly refurbished office building can cost about R95/m² to occupy. A comparable building in Sandton has a going rate of more than R150/m², says Olitzki.
He says the pandemic has also lowered the cost of properties in the CBD, which might act as an incentive for property developers to buy buildings cheaply and redevelop them into offices or retail space.
Another draw of downtown CBDs in Johannesburg and Cape Town is that they are centrally located and can be easily accessed using public transport – especially by people in far-flung areas. These public transport networks also make it a developer’s dream to supply affordable accommodation catering to people who work in these areas.
Jabulani Xaba, a Pam Golding Properties agent specialising in the Joburg CBD, isn’t bullish about the area, however. He has noticed a decline in residential and commercial properties since the start of the pandemic. Demand for office space is low, and owners of such properties have sold them to investors who convert commercial buildings into residential buildings.
“This property conversion trend, which was also adopted by Absa Group when they converted their previous office building Absa Towers [in Joburg CBD] into a residential skyscraper, has not yielded much positive result as they are battling with a low occupancy rate.
“Commercial property viability has certainly declined in Johannesburg CBD, and the current economic climate, characterised by high inflation and increased interest rates, will certainly add more pressure to the market.” DM168
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.