Island Centre Paarden Eiland

Island Centre in Paarden Eialand is a great example of the re positioning of obsolete industrial buildings. With very little industrial space in the construction pipeline in Cape Town this this year; industrial users have a shortage of new properties to consider. While national tenants will pay top rentals for state-of-the-art, high-tech facilities in and around logistics hubs, developers need to unlock the potential in the functionally obsolete industrial buildings sprinkled throughout Cape Town’s older Central and peripheral Industrial areas such as Epping, Paarden Eiland, Maitland, and Woodstock.

Though not equipped with today preferred 14 metre roofs and sprinkler systems, older industrial buildings can meet the needs of certain users. Properties with solid structures in accessible locations can be updated and marketed to a variety of users, particularly if the roof is in good condition, the office space is clean, and the property is priced right.

High land prices, and a lack of available land, are helping to create a market for redevelopment of older industrial buildings. Property owners, developers and traders need to realise the potential of these aging facilities by upgrading and marketing them to tenants who understand the economic value of repositioned space.

The key to marketing these updated industrial properties is having upgraded units to present to prospective users. Converters must be willing to spend money upfront for upgrades particularly when converting to a multi-tenant facility. This helps prospective users understand what the finished space will look like. It is very difficult for the average tenant to visualise the conversion and although good marketing brochures are a great marketing tool, nothing beats taking them through a unit that has been upgraded.

Target tenants are almost always local service companies and privately owned companies that will consider an older, upgraded, building due to its location. These companies may want to move up to a larger space, scale down or relocate to the area once an acceptable building is made available. Start-up companies and service businesses that require modern features also may be interested in second-generation space in exchange for lower prices rates.

What do prospective investors and developers need to look for when considering industrial value-add opportunities? The fundamentals of the property should really be in place. A solid building envelope needs to be there with good access and parking or this must at least be able to be created.

Prime conversion targets are larger antiquated factories that are structurally sound, have fair floor to ceiling clearance, and can be broken down into small units because these spaces can be marketed to service tenants that do not need high clearance and sprinklers. They will need to be retrofitted to meet Occupational and Safety Health standards and good security needs to be put in place.

Be careful not to undervalue the conversion process. Budgeting for contingencies is important. You rarely know what you might find when you start renovating. Another pitfall to avoid is underestimating neighbouring tenant’s effect on project marketability. There are users such as scrapyards that can devalue your conversion or renovation project.

Older industrial buildings need to be bought with the understanding that the buildings must be updated. Common structural changes include increasing ceiling heights, creating multiple entrances, cutting driveways through the middle of properties to increase loading access, and breaking up large spaces.

In some instances the buildings have transitioned from manufacturing uses to showroom, offices and retail space. Good examples of this are Island Centre in Paarden Eland, The Waverley in Mowbray, M5 Business Park (Ex Kodak Building) and the BMD knitting Mill in Diep River that is now let to large call centres. Another recent example is the Old Biscuit Mill in Woodstock. Often these buildings have been sold on sectional title offering  good opportunities for owner occupiers and smaller industrial property investors.

Interior improvements often include updating lighting from fluorescent to modern energy efficient lighting, replacing wooden doors with metal or glass-panelled doors, installing ventilating and air-conditioning systems, upgrading floors, adding modern sprinklers, painting, and refinishing office spaces and restrooms. Exterior improvements range from replacing facades to enhancing landscaping to painting. Though industrial users traditionally don’t require pretty sites, the building appearance must be significantly improved.

While updating old industrial facilities poses a number of challenges, there is a growing amount of interest in these projects both from value-add investors and tenants. When marketing renovated space to potential users, it needs to meet a tenant need and offer good value.

In Cape Town industrial areas, property is generally well held often by ageing landlords that do not have the energy, expertise and available capital to upgrade their properties. Often their properties have had significant vacancies for years and rentals have moved sideways and even backward in inflation terms. Whist it is difficult to persuade these owners to sell and to get them to understand the pricing needed for a developer to make a conversion project work, sometimes good sense prevails and these properties come to the market.