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Development at a Precipice in Umhlanga!

Development at a Precipice in Umhlanga!

One could mistake the current Umhlanga skyline for that of Dubai's in its construction boom of 2004 to 2008. The image of beach goers, in flip flops, enjoying a day of sun and sea has been replaced with one of skies adorned with cranes and roads filled with construction vehicles; indicative of the heavy development occurring in the region.

This kind of activity is usually reserved for countries with economies in major growth phases; however, one can almost feel a renewed sense of optimism about the economic growth and potential emanating from KwaZulu-Natal's most prized piece of real estate, Umhlanga.

With Stats SA indicating a decline in real GDP growth of -2.2% quarter-on-quarter (q-o-q) as at Q1:2018 and economists predicting an economic growth rate of 1.7% for 2018 overall, expressed confusion could be excused due to the massive influx of capital being poured into Umhlanga's new infrastructures. Nonetheless, recent statistics such as q-o-q GDP growth for the 4th quarter of 2017 accelerating to an impressive 3.1% as opposed to the predicted 1.8%, and that fact that interest rates have remained stable after being reduced to 6.5% as at March 2018, all bode well for the industry. Optimism and careful speculation are thought to be major driving components behind the high construction levels, which are currently evident. It is however important to note that larger developments are usually de-risked well beforehand or are underpinned by solid long term commercial leases or residential pre-sales as well as long-term international hotel management contracts (some developments containing all three).

Approximately 100 000m² of A and P-grade office stock has and will be coming online over the next 24 months and the burning question remains whether we are witnessing the bust of the commercial property market bubble. Many commercial developers are diversifying into residential projects where pre-sales have the ability to de-risk and finance entire mixed-use developments. The co-development model has certainly become popular with the majority of buildings in Ridgeside being developed in accordance with this methodology. This is testament to the success of SMMEs and their ability to fund ownership of their premises in Umhlanga; coupled with the reluctance of climbing rental rates.

Furthermore, developments in Cornubia and proposed office developments in the new Sibaya Precinct may place pressureon the demand of space within Umhlanga. Nevertheless, there is still continued migration from the CBD and inland areas such as Pinetown, Hillcrest and Westville into Umhlanga which should see vacancies remaining stable in the medium term.


Mitch Cowie