The striking disparity between Cape Town and Durban’s CBDs demonstrates the adverse impact that inadequate service delivery may have on adjacent commercial real estate businesses. Picture: Pexels
Municipalities that are poorly managed do more than simply irritate inhabitants and cause garbage piles; they may also be a harbinger of widespread economic downfall.
For metropolitan areas in particular, the indicators of a badly managed municipality quickly become difficult to ignore, symptomatic of a lack of trust in the area’s economic viability and worries that crime rates will grow as opportunists seize on unoccupied buildings.
Chief executive of Galetti Corporate Real Estate, John Jack said the striking disparity between Cape Town and Durban’s CBDs demonstrates the adverse impact that inadequate service delivery may have on adjacent commercial real estate businesses.
“While there is still a significant amount of economic potential in the city, sustained efforts will be needed to restore Durban to a thriving and safe hub for businesses and consumers alike,” he added.
Just recently, the eThekwini municipality admitted that it was unable to achieve its own timeline for restoring water to communities north of the city.
Municipal manager Musa Mbhele said the government agreed to restore water to impacted communities.
“These interventions are being carried out on four sections of the aqueduct. On the first section of the aqueduct from Durban Heights Waterworks to Umgeni River, six air valves were serviced and one air valve was replaced. Work has been completed on this section,” said Mbhele.
According to Jack, Cape Town remains an outlier.
He went on to say that the mother city’s infrastructure has received substantial support from both private investors and the City of Cape Town, with the latter pledging R6.94 billion to infrastructure enhancements for the fiscal year 2022/2023.
Jack listed these four major effects of badly run municipalities:
Decreased property values
Private investment is equally as important as a well-managed municipality in keeping CBDs from becoming ghost towns or slums.
However, investor confidence is inextricably connected to their conviction in a municipality’s capacity to sustain high levels of service delivery.
“This money is typically allocated towards infrastructure upgrades, which in turn attracts more businesses to the area and further cash injections from investors looking for stable markets,” Jack said.
Higher vacancies
“Badly run municipalities can, over time, lead to a mass exodus from a certain area due to frustrations over service delivery. Unfortunately, vacancies can often have a domino effect, with businesses following their competitor’s lead and leaving once bustling high streets empty.”
Higher occupancy rates are strongly related to a city’s average capitalisation rate, with higher numbers indicating greater risk.
According to the Rode Report for the third quarter of 2023, Durban’s average capitalisation rate for Grade-A decentralised office property was 11.6%, indicating a higher level of risk in investing there.
In contrast, Cape Town’s average capitalisation rate was 9.7%, far lower than the national average of 11.1% and the lowest of any South African city.
Landlords have to spend more on private services
Most businesses, especially those in the logistics industry and those that interact directly with customers, cannot halt operations during a power outage.
As a result of chronic load shedding, many landlords have had to invest in expensive alternative power sources to protect their renters.
“Load shedding affects all parts of South Africa, but there are some areas that experience longer periods without power as a result of damages to substations and wire theft, which the municipality may not attend to in a timely manner.
“As a result, landlords and businesses in these areas are under increased pressure, with frustrations compounded by other service delivery failures like no refuse removal or water outages,” concluded Jack.
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