Circa 1992, when the Mine Pension Fund had a master plan to transform the Melrose Arch precinct from an established office park into a mixed-use development, many ruled out the plans as being too ambitious.
South Africa back then had no blueprint or track record of how mix-use developments worked. But having a single area that combines office, retail and residential elements had already taken off in other parts of the world, largely the US and Europe.
Added to the scepticism was strong criticism that the developers should invest in the inner Johannesburg CBD, as the node was starting to decay with the exodus of corporates to northern areas.
As Graham Wilson of Osmond Lange Architects and Planners recalls: “We believed intrinsically in the city centre but we also believed that a decentralisation of nodes was also a good thing. You don’t have everyone converging to the city centres every day.”
Wilson at the time was involved in master planning of Melrose Arch when the Mine Pension Fund owned the precinct.
The pension fund, which also owned many properties including office buildings and shopping centres throughout South Africa, disposed of smaller properties in its portfolio to focus on core assets.
“The pension fund tried to do what Liberty Properties did at the time with Sandton City by getting rid of smaller properties throughout the country to focus on really big ones,” says Wilson.
And the focus for management of the pension fund was to grow the precinct from its initial office park to include several amenities. In 1995, the pension fund was on the search for properties around the business park in a high-value area with good access to highways suitable for the expansion of Melrose Arch.
“Then JHI Properties came up with this triangle of land boarded by one side of Corlett Drive, which is one of the east-west routes. We don’t have many good east-west routes in the northern suburbs and then obviously the N1. Melrose Arch was already a nicely defined area,” says Wilson.
The work begins
It managed to get the rights to demolish 95 residential properties around the precinct to proceed with its plans – but the government had one condition. The only way the pension fund could start with expanding Melrose Arch was to replace the demolished properties and dedicate up to 15 000 square metres of the planned 191 500 square metre development to residential units.
“It was big development rights for offices but very small rights for retail [awarded to the developers]. The government did not want to lose housing at around 1994 and did not like the idea of demolishing 95 houses because it wanted to deliver on housing at the time,” he says.
The pension fund was reluctant to embark on residential developments and gung-ho about keeping Melrose Arch as an office park, and reverted to approaching Wilson to sell the land dedicated to residential.
“We said to them, ‘guys you have the makings of a proper mixed-use development, rather than just an office park. People want to live closer to office parks and want to have flats here.’”
Management was convinced of Wilson’s vision and research on global trends to redevelop existing cities and densify spaces.
“What they did not want was a flash in the pan and to make money from a development that would eventually become degraded.
“They said this thing has got to be future proof; be active not only in ten, 20 and 40 years but make it into a worthwhile investment.”
And more than 20 years later, the Melrose Arch precinct is among Johannesburg’s prime real estate, along with nearby Sandton and Rosebank. The trendy precinct, which is no doubt targeted at the well-heeled with a string of luxury retailers as tenants, offers top-end residential apartments and office space.
Even the ownership structure of the precinct has evolved over time, with property development company Amdec Group being the main shareholder from 2005, and Liberty Group netting 25% in 2014.
Next phase of Melrose Arch
Sandton and Rosebank have seen large-scale developments in recent years, and Melrose Arch is following suit. The precinct, which currently stands at 225 000 square metres and is valued at about R8 billion, will grow to 600 000 square metres in the next eight years. This will see the precinct’s valuation increase to R14 billion.
Already, Amdec has broken ground on a luxury apartment development on Whiteley Road, dubbed One on Whiteley, which boasts 119 one- and two-bedroom luxury apartments. Amdec and Pam Golding Properties, which will market the apartments, are eyeing for the development to be completed in 2017.
The 40 000 square metre development is expected to cost more than R2 billion. Apartments at One on Whiteley are priced from R2.7 million for a 60 square metre one-bedroom apartment through to R6 million for a two bedroom apartment of 136 square metres.
This development comes at a time when Melrose Arch has apartment rentals ranging from R22 000 for a one bedroom per month up to R45 000 per month for a two bedroom apartment.
Managing Director of Amdec Guy Gordon, says Melrose Arch currently has about 190 residential units in three apartment buildings and One on Whiteley is expected to grow the precinct’s units close to 300.
“Residential is a key part of Melrose Arch. One on Whitely is our fourth project over the last decade. We believe that the supply and demand dynamics will drive the value of residential property,” Gordon says.
He says apartments at Melrose Arch are targeted at individuals looking for primary residence and property investors in the form of buy-to-let investments. “About 40% of buyers are buy-to-live and 60% are for buy-to-let,” he says.
Amdec, which owns undeveloped bulk in Melrose Arch, plans to deliver a further 700 apartment units over the coming years.
Melrose Arch is showing strong property fundamentals, says Pam Golding’s chief executive Andrew Golding. “Rental yields in Melrose Arch have been consistent at 9.5% to 14% which are some of the best in the country,” he says.
Golding says One on Whiteley, which is selling off plan, has already seen 20 reservations in terms of the sales pre-launch. “We are confident that this project will bring a variety to Melrose Arch and is going to be popular with investors and people who want to live here,” he says.
One on Whitely will also have a five-star hotel component linked to it, where a 350-unit key hotel with conference facilities is planned. “The hotel is by an international hotel brand, which we are not allowed to mention yet. But it will be a first in the country for that brand,” Gordon says.
The apartment development will also house a 4 000 square metre Virgin Active gym and Daytona Motors, which sells luxury vehicles including Aston Martin, Maclaren and Rolls-Royce.
But One on Whitely is a small part of Melrose Arch’s grand development plans. The precinct has about seven hectares of undeveloped land.
Gordon says that Melrose Arch has 38 000 square metres of retail space and Amdec looks to increase this to 60 000 square metres. As the retail space grows, so will parking, as the precinct is expected to have 18 000 parking bays. “We conservatively estimate 35 000 people here every day [from the 8 000 – 10 000 currently],” Gordon says.
Amdec will roll-out more office space to add more corporate tenants beyond the current Stanlib, Lonmin, WorleyParsons, DuPont and more. Rentals in the precinct are considered as prime, given that average rentals are R180/square metre, according to real estate services firm Jones Lang LaSalle in its first quarter office sector report. While Sandton rentals fetch R197/ square metre.
Currently, the precinct has two hotels, the Protea Hotel Fire & Ice and African Pride Hotel, and five more are in the pipeline. There is also a possibility of adding a retirement village to the precinct.