YES, THERE IS STILL VAST OPPORTUNITY IN THE SOUTH AFRICAN COMMERCIAL PROPERTY INDUSTRY FOR ASTUTE DEVELOPERS AND INVESTORS
With R700 million in gross assets, chartered accountant turned top property investor and developer celebrates 30-years of success in South African commercial property market
Over the past three decades, entrepreneur and businessman, Franz Gmeiner, has witnessed the commercial property industry in South Africa change in many ways. This includes seeing interest rates reducing substantially from the shocking 25,5% prime rate in 1998, the convenience retail centres evolution, the decentralisation of office nodes such as Sandton, Rivonia, Rosebank, Sunninghill, Waterfall to name a few, as well as the arrival of township retail and the decline of old mining towns.
Gmeiner is the CEO and founder of Orion Real Estate Ltd (Orion) which was established in 1991 and has grown into a strong portfolio of industrial, retail and hotel properties.
The Group was originally founded as Eseza Property Holdings with the acquisition of an 11-storey office tower in Eloff Street, in downtown Johannesburg. The initial investment in commercial property was the result of Gmeiner’s desire to own his own office premises for his firm of chartered accountants, Cohen & Gmeiner.
Eseza Property Holdings later evolved into Orion Real Estate Ltd and listed on the Johannesburg Stock Exchange main board (JSE) in 2005. In 2020, Orion migrated to the ZARX Stock Exchange as a real estate investment trust (REIT) with a property portfolio in the retail, industrial and office markets.
Over the years, some of the substantial property developments that Orion has undertaken include the:
– Redevelopment of Primrose Mall (1994) Rietfontein Rd, Primrose, Germiston
– Upgrade of Mont Aux Sources Hotel (2014), Bergville, Northern Drakensberg
– Redevelopment of Elma Park 22-storey residential tower (2005), First Ave, Edenvale
– Redevelopment of Nu Metro movie house complex into a Boxer Supermarket (2016), Samora Machel Ave, Mbombela, Nelspruit
– Redevelopment of Mountain View Shopping Centre (2017), R44, Gordons Bay, Western Cape
– Installing a new Woolworths Foods store (2015) Gordons Bay, Western Cape
– Constructing a Virgin Active gym in Braamfontein (2016), Jorissen Str, Braamfontein
Recent projects include the redevelopment of two Shoprite Usave Supermarkets in townships in the Western Cape, as well as the expansion and refurbishment of the Promenade Shopping Centre in Nelspruit
Valuable lessons learnt
One of the hardest lessons Gmeiner learnt over the past 30 years in the commercial property industry is to keep mortgage debt at modest levels (Orion’s current debt levels are at a modest 12% of value). Other lessons include knowing your tenant and looking after them sufficiently, controlling costs and most importantly, having a reliable, integrious funding partner that walks the road with you.
As to how the various business and industry challenges that he has experienced over the years impacted him as a business leader, Gmeiner notes; “It has certainly humbled me in that I have learned that I don’t have all the answers. My success is largely a derivative of the quality and motivation of my team. Good business and working relationships are essential.”
In terms of the key characteristics or skills one would need to be successful in the commercial property industry, Gmeiner explains that it is important to have a real passion for the business, tenacity, willingness to be at the coalface and being open to learning from others in expanding one’s understanding of all aspects of this exciting sector.
The top two highlights of Gmeiner’s business journey so far include, “acquiring the first 11-storey office tower in Johannesburg; and surviving the 2018 credit crunch and managing to reposition the business as a profitable property group.”
Sharing his advice to stay motivated during hard times, Gmeiner notes; “Have a strong and compelling vision, then be committed in taking it one day at a time to realise your desired future outcome. Also, don’t take mistakes and losses personally, keep going and be relentless in your quest for success.”
The current local commercial property environment
Despite many challenges, Gmeiner believes there are plenty of opportunities in the local property market for astute developers and investors prepared to take risks.
“The commercial / office sector is challenging due to the economic decline, automation advancement and the ‘work from home’ business models that were brought on by the COVID-19 pandemic. However, the industrial sector is holding out, and positive trends including the advent of online shopping have created a demand for distribution centres and depots,” comments Gmeiner.
He adds that township retail is performing exceptionally well, driven largely by social support systems sponsored by Government. “Convenience retail is also doing well, as are commuter centres. Large regional malls are unfortunately a mixed bag with some performing well and others struggling.”
The unrest that was experienced earlier in the year in Gauteng and KZN contributed to frustrating the property market to an extent, resulting in negative sentiments which have made securing funding for certain developments more challenging.
Economic growth will ‘lift all boats’
“Yes, there are incredible opportunities in our sector, but South Africa could certainly benefit from stronger economic growth which will have a direct impact on job creation. This in turn will boost demand for all segments of the property industry. The unnecessary bureaucracy and inefficiencies are also a major handicap for the country and need to be resolved. Proper infrastructure, consistent electricity and water supply are also critical for commerce to thrive,” says Gmeiner.
He adds, “Anything that happens at a macro-economic level affects the commercial real estate sector and the pressure on the economy is directly felt by our industry. After all, businesses ultimately drive the demand for property.”
Gmeiner notes that the South African property register managed by the deed’s office is probably one of the best in the world. “Our local conveyancers are also world-class. The only current shortcoming in this particular space, is the issue of rates clearance certificates which can take a long time to process. Electricity supply and faulty billing systems also play a role. Ultimately, we need better local authority efficiencies and fair, more accurate electricity billing.”
Doing “more with less”
Orion has some exciting projects in the pipeline for 2021/2022 including the planned redevelopment of Wendywood Centre, a Shoprite Usave retail store opening in Wesbank, the opening of four TFG Group brands at the Promenade Centre including Markham’s, Total Sports, The Fix and American Swiss, as well as acquisitions of additional properties.
“Over the years, our Group has learned to do ‘more with less’. Our core skills at Orion include identifying and redeveloping unused or obsolete space. This creates significant increases in rental income and consequential property values,” adds Gmeiner.
From providing quality commercial space in the office, retail, industrial and hospitality markets, Orion also delivers services in property management, tenant installations, maintenance management, security and cleaning to name a few.
The award-winning Group has over 200 employees and has had top employer status for seven consecutive years. “There’s no doubt that the breadth of leadership and talent in our company has been central to our success,” concludes Gmeiner.
Orion has a total of 23 properties spread over South Africa.
