What to do with obsolete buildings?

by Tania Wannenburg

The increasing number of obsolete commercial and industrial buildings offers many opportunities for redevelopment.

There is massive redevelopment potential for the increasing number of obsolete buildings in South Africa to be refurbished and brought back in line with current market requirements.

“Many older buildings that are unequipped for today’s increased technology requirements and have aging infrastructure, such as air-conditioning systems, lose their appeal and relevance,” explains Ken Reynolds, Regional Executive in Gauteng: Property Finance at Nedbank Corporate and Investment Banking (NCIB).  

The shift from closed- to open-plan work spaces is also a factor that may put buildings at risk of obsolescence. Whereas previously, the average office building allocated up to 30m² per staff member, this has now decreased to about 10m² per employee. With an increase in employees, older buildings face the additional challenge of insufficient common areas and parking facilities.

In the industrial building segment, older structures comprised of harmful materials and low clearances, with layouts that put employees in close contact with potentially harmful materials, have become undesirable. The change in industrial activity from heavy to light engineering, as well as greater demand for warehousing and distribution, has also seen a shift in the type of facility that companies require.

Plan well
Reynolds stresses that while redevelopment presents significant opportunities for developers and building owners, it is critical to conduct thorough feasibility studies and market research before deciding on an obsolete building’s fate.   

A key factor is determining the property demand in the area in which the building is situated. “For example, due to the change in the nature of the demand in Braamfontein, Johannesburg, from commercial to residential, many office buildings in the area have been refurbished into residential accommodation.

“Another example is in industrial areas such as Isando, where developers are splitting up huge buildings into multiple, smaller spaces to cater for the fact that businesses are requiring less and often different space from their previous requirements,” Reynolds explains.

In prime locations like Sandton, buildings once considered A-grade that have become functionally obsolete as newer structures are built around them, are ripe for development in order to earn a better return. “In a given area, C- or D-grade buildings still incur the same or higher overhead costs, such as rates and taxes, levies and maintenance, as P- or A-grade structures. As such, in an area like Sandton it makes sense for developers or owners to upgrade or redevelop these older buildings,” Reynolds adds.   

Renovate or rebuild?
According to Reynolds, brownfields projects have the advantage of already having all the facilities, such as water and electricity, in place as well as approval for services and zoning. However, in some cases where the floor area ratio or clearance heights are unsuitable for the purposes for which the building will be transformed, it may be better to start from scratch.

“With this in mind, the biggest mistake developers make is underestimating the problems that they are going to find once redevelopment starts,” he says. “Therefore additional contingency costs need to be factored in, especially for unforeseen challenges such as elevators that require replacement or massive plumbing and electrical work that needs to be conducted,” he notes.

Full thanks and acknowledgements are given to the Property Finance division of Nedbank Corporate and Investment Banking for the information provided to write this article.

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