Flushing your savings down the 'To Let'
Trieste, in the heart of the city bowl has a big sign above its entrance with the proud announcement, “Voted Cape Town’s No.1 Coffee Bar.”
But instead of tasty Italian treats, all the forlorn-looking display windows are good for now are ‘To Let’ signs!
34-year-old Gareth Gammie started Trieste in 2008, because he had “always dreamed of owning an Italian coffee shop.”
The UCT graduate didn’t realise he was launching his dream alongside the world’s most devastating recession in recent memory, and together with a monthly rental on the wrong side of R30 000, he soon started feeling the pinch.
His restaurant on Thibault Square is one of several prominent retail locations now standing vacant in the Cape Town CBD – sad signs of shattered dreams and flushed venture capital.
He says the decline of his business was a slow process, as the struggle to make his monthly overheads grew more stressful.
‘To Let’ signs in the Cape Town CBD are nothing strange, but it’s clear there are a lot more than usual these days. Eyewitness News counted no less than 13 vacancy signs in a one block radius in the city bowl.
And this feeds the fear CBD may be following the same path of decline so common to other CBDs, such as Johannesburg and New York in the 1990s.
It seems no building in the city centre is spared - valuable retail space and office blocks alike – their building facades littered with ‘To Let’ signs. Director at Baker Street Properties Dave Russel, has confirmed the vacancy figure is currently standing just shy of 11% - on par with past historic highs, most notably the 14% of 1995 and 12% in 2003.
Empty corner retail spots such as Trieste are especially eye catching, as in boom times, entrepreneurs would have been clamouring to be the first to clinch them. After all, location is everything.
Russel says the current ebb is a combination of resiliently high rentals and the persisting global recession, which seems to have finally snared South African business as an afterthought.
“Landlords are not fond of dropping rentals,” says Russel. But he’s quick to add the CBD is … and will continue to be … the main commercial node in Cape Town.
Rob Kane is the chairman of the Central City Improvement District and also CEO of Vunani Property Investment Fund, which positions him perfectly to comment on this issue. He believes we find ourselves in the toughest times in the past 60 years and agrees with Russel that we are seeing a tenants’ market in the Cape Town CBD at the moment.
A lot more forthright in his commentary, Kane says landlords may historically have been a little greedy with their rentals, but that’s all changing.
Carl Lotter from the newly established SA Small and Medium Enterprises Federation echoes his sentiments, saying despite appearances, demand to be in the CBD is still high.
But this may well be the bird’s eye view, as many entrepreneurs are clearly treading water, which makes it perplexing to notice the ongoing construction of new office blocks in and around the city centre. One such example is the construction of Portside, on the corner of Hans Strijdom and Bree streets, which is to be the tallest skyscraper in the city. The one billion Rand building with 50 000 square meters of floor space is expected to open in March 2014.
It’s one of several new office/retail spaces currently under construction in and around Cape Town. This while many older buildings are being refurbished, confounding a layman’s understanding that empty space be filled first, before new ones are built.
But while it’s not a pretty sight to see small business bleeding from the jugular, Lotter says there is investment method in the apparent madness, albeit a risky one.
“Investors are looking three-four years ahead and gambling on the possibility that the space will be needed when the time comes,” says Lotter. All the commentators say there are signs the market is turning.
But back to the current status quo, both Lotter and Kane agree there’s no better time to take the plunge into a start-up business.
“Landlords are prepared to make concessions they would not have considered previously. Some of them are dropping their rentals, increasing their installation fee offers, while others are giving longer ‘rent free’ periods,” says Lotter.
So, while Trieste awaits its new incarnation, other cafes, coffee shops and restaurants appear to be surviving, if not thriving – another argument for small business people with an appetite for risk to take the plunge.
But Gammie sounds a warning, borne out of bitter experience: “Make sure you do your due diligence.
Location is everything, but also make sure that the foot traffic passing your business can in fact afford your product,” says Gammie.
Otherwise you too will be taking your money and connecting the words “TO” and “LET” with an “I”!