Bidding for property conversions with the High Street Auction Co.

For High Street director, Greg Dart, not only does the auction platform unlock liquidity in the marketplace for private investors or state owned enterprises with large property portfolios that no longer match their future business strategies but it also provides an invaluable foundation for future development and re-development.

Property conversions - office blocks to apartment blocks, retail centres to medical facilities or workshops into for-hire storage or warehouses - are the name of the property game of late.

Some of the almost 40 properties that will come under the High Street Auction Co hammer on July 17 could be ripe for re-invention, Dart believes.

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At auctions, buyers who are actively transacting include private investors and family offices stepping into the gap left by cautious institutional capital and Real Estate Investment Trusts (REITs) which are still active, but highly selective - mostly selling off non-core assets and recycling capital into better-performing industrial or mixed-use properties, he notes.

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Repurpose rather than rebuild

Dart notes that there is still an oversupply of commercial properties with market forces determining the need for retrofitting office spaces to meet current day needs for more efficient, smaller work places and hybrid working models.

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“Hence there is a need for capital allocation for asset repurposing, converting underperforming office stock into alternative uses will ultimately remove obsolete inventory and tighten the market,” he says.

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The consensus at High Street is that, in many instances, it is better to repurpose a building than build from scratch. Innovating so that existing buildings’ lives can be extended saves on costs, time and energy and contributes towards sustainability. Construction time can be reduced and challenges such as zoning and building restrictions are diminished.

Dart says savvy investors can quickly ascertain if the layout of a building is suitable for sub division into multiple residential units, for example, and if it is viable to convert dated plumbing, air conditioning and electrical infrastructure and even add green elements to meet modern day market demands.

Relooking at retail

At present, both shoppers and investors seem to favour convenience and neighbourhood retail centres anchored by grocery or pharmacy tenants for their stable footfall, essential service appeal, and resilience to economic volatility rather than large regional malls.

However, according to Dart, it doesn’t stop there.

Many retail brands and landlords are now adopting hybrid models, using physical stores as both showrooms and distribution points, enhancing their ability to meet the demands of consumers shopping online. Some properties are being converted or upgraded to cater for other commercial tenants such as medical practitioners and professional services.

Dart believes that the Sunward Palms in Sunward Park, Gauteng, where there is already provision for the inclusion of medical facilities and which will be auctioned on July 17, is an example.

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“This 6232m² property is ideally suited for a proposed medical day hospital development as it is perfectly positioned to complement the existing anchor tenant, Virgin Active Gym and nearby medical facilities including the Netcare Sunward Park Hospital. It is currently operating as a popular retail and lifestyle hub and the property enjoys high visibility and easy access,” he explains.

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Accommodating change

Another segment of the commercial property space that is evolving is the hospitality sector which was amongst the hardest hit during the Covid pandemic. Its recovery is seeing the entrance of new operators who are converting older properties to better service new tourism requirements or even re-using these properties as medical facilities, retirement centres or residential estates.

One such venue, known as Dozi’s Back to the Roots Venue at Hartebeespoort in the North West province, will feature in the July 17 auction. This versatile property offers the perfect blend of business potential and serene lifestyle living, ideal for a boutique resort, retreat or live music destination. In addition to two spacious residential homes, there is a professional music recording studio and guest rooms.

The property also includes five active boreholes, providing sustainable water supply for daily operations and future expansion.

Properties in Dullstroom include the quaint Cpirit Market Place with its repurposed black shipping containers that have been turned into trendy market inspired eateries, artisan shops and beauty salons (with an additional two phases to be further developed), the seven charming and fully equipped Cpirit Country Haven Self-Catering Cottages with beautiful mountain or garden views and adjoining function and entertainment venues and orchards, trout dams and stables as well as the Cpirit Village View Guesthouse.

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“Cpirit Village View offers the perfect blend of serene country living and modern comfort. Nestled in the sought-after town of Dullstroom, it is an ideal investment opportunity for those seeking a luxury guesthouse, a boutique accommodation business or a spacious family getaway. Cpirit Village View comfortably accommodates up to 18 guests across two beautifully appointed residences - a main triple-story guest house and a separate luxury self-catering garden unit,” explains Dart.

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Rethinking residential

The most talked about trend right now is the conversion of commercial properties into residential and student accommodation with more and more developers entering this market. Latest trends favour mixed-use developments that minimise travel costs and congestion.

Dart puts the rise in mixed-use developments down to urban migration, lifestyle integration and a continued remote work culture.

The growth of live-work-play precincts reflect both the diversification of income streams (residential, retail, office) and their strong appeal to tenants seeking lifestyle and flexibility.

More importantly, town planning pre-1994 did not reflect the true dynamic of the economy with the workforce located in outlying areas. Issues such as location close to places of work, availability and cost of public transport and proximity to medical and educational facilities were seldom considered.

He acknowledges that there is a compelling case for investment in commercial to residential conversions – especially those with an affordable housing component.

In fact, many local governments are actively seeking opportunities to partner with developers to leverage inner-city residential projects as a way of addressing growing social housing backlogs and addressing urban decay in city centres.

An example of what can be achieved was a property in Salt River that was sold by High Street to big precinct developer Divercity for R30-million.

This has morphed into Divercity’s R280-million inaugural Cape Town development (known as 9 Hopkins) which broke ground last year and will bring around 400 affordable rental apartments to Salt River

Dart points out that Cape Town has a severe shortage of rental housing at rates under R8 000 per month with this development filling a critical gap.

In addition to studio, one and two-bedroomed units, 9 Hopkins, which forms a triangle wrapped by Yew, Hopkins, and Aubrey Streets, will offer 930m2 of retail space, a clubhouse, gym, co-working area, and a communal terrace.

Altering industry

“Despite a tough macroeconomic backdrop, we have seen commercial property transactions recovering selectively, with activity concentrated in defensive asset classes, prime nodes, and opportunistic plays. Industrial and logistics properties are top performers with rising rentals and near-zero vacancies in core nodes,”

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At the same time, industrial properties, such as warehouses and last-mile delivery hubs, are experiencing increased demand as the e-commerce sector grows, particularly in underserved areas like townships and rural regions.

Dart says there are also opportunities for older industrial structures to be deconstructed and revitalised to serve logistics and freight businesses in prime locations. Older factories are not suitable for the large trucks of today whilst many did not have much needed off street parking. Large older buildings can also be sectionalised to accommodate numerous small businesses offering sought after modern amenities and security.

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“Many sellers and buyers across the country are using the auction platform for a quick, transparent exit at market value. The flip side of the coin is that private sector investors can access key properties in prime locations. In areas such as Cape Town, various CBD’s and the South Durban basin close to the Durban port where development land is in short supply and greenfields projects are unlikely, this creates opportunities for upgrades and new builds,” he concludes.