Davis Langdon Africa Handbook Jan 2009

DAVIS LANGDON
AFRICA REGION
PROPERTY AND CONSTRUCTION
HANDBOOK 2009
22nd EDITION © 2009
ISBN 978-0-620-43099-9
Published by Davis Langdon, formerly Davis Langdon Farrow Laing,
as a service to the property and construction industry
Written and revised by

Dr Gerhard Brümmer
Research manager
Corrie Pienaar
Design and layout
Glowing Asparagus Design
DAVIS LANGDON AFRICA

ESTABLISHED 1922
www.davislangdon.com
CONTENTS
Message from the managing director 2
Vision and values 4
BBBEE statement 5
Quality management 6
Research support 8
Sustainability 9
Quantity surveying / cost management 11
Engineering 12
Building services cost management 14
Project management 15
Legal support 17
Valuation services 18
Specification consultancy 19
Application of inclusive rate estimates 22
Approximate inclusive building cost rates 30
International costs 39
International office rental comparison 43
Building cost 45
Graphs (BER and JBCC CPAP) 52
January to January % change 53
January indices 54
Tender market indicator 55
Method for measuring rentable areas 56
Return on investment 63
Residual land value 69
Africa in figures 72
Area and population 73
Graph: population 2006 74
Gross domestic product 2006 75
Graph: gross domestic product 2006 76
Directory of offices 77
Worldwide & associated offices 89
MESSAGE FROM THE
MANAGING DIRECTOR
In January last year Davis Langdon decided to
implement an international brand programme
whereby we revisited our branding globally with a
view to moving towards rationalisation of our brand.
For a considerable period historically we have not
been much more than a quantity surveying firm.
However, the range of our service offerings currently
indicates that we have become a leading global
construction consultancy. Our new brand identity
reflects and recognises this different positioning.
I am therefore pleased to announce, that as of early

2009 we have globally launched a new and evolved
visual identity, which will be introduced gradually over
the coming months. This development was
completely managed in-house with cost neutrality our
guiding principle. Our core values, and our
determination to offer clients the best possible
service, remain unchanged. This reflects our
confidence in the future, despite worldwide tough
economic climates.
Davis Langdon has started with a strategic vision of

building on our strengths and exploring opportunities.
To this end we have established new offices in Port
Elizabeth and Maputo and are on the road to
formalizing our relationship with our partners in
Nigeria and strengthening our existing presence in
Botswana. Africa is the frontier where we want to
develop and expand key businesses in order to service
our clients in their endeavours. We have approached
these existing offices with a spirit of partnership, with
local partners retaining stakes in the businesses. We
view this approach as being a sine qua non of success.
Our service lines have been expanded with property

valuations, specification consulting, project
management, facilities management consulting and
public private partnerships as further offerings. The
above, together with our strengths in quantity
2 DAVIS LANGDON MESSAGE FROM THE MANAGING DIRECTOR

surveying and cost management, is being under-
pinned by sectors specialisations. Our sectors have
been identified as retail, public, education,
commercial property, hotels, sports and culture,
infrastructure, engineering, industrial and mining.
Our investment in research will ensure the required
outcomes in these sectors.
Davis Langdon has embarked on a programme of

being the employer of choice in South Africa. We value
our employees as being the cornerstone of our
business and the greatest asset we have. Our
employer of choice programme, amongst others,
includes aggressive recruitment, talent retention,
training and education, staff wellbeing, research and
innovation.
Corporate social responsibility is an area close to our

hearts and involves charitable giving, involvement
with key social projects on a pro-bono basis,
sustainability and health and safety. In addition we are
in the process of obtaining ISO 14001 accreditation to
enshrine our environment, health and safety policies
and to enhance sustainable living for the benefit of all.
We have made further strides in our BBBEE

commitment and have moved up from being a Level 5
contributor a year ago, to a Level 4 contributor in
terms of the Department of Trade and Industry's
codes of good practice. We view this milestone as an
ongoing quest to achieve the highest possible rating
in support of government's initiatives.
The entire Davis Langdon strategy is based on

offering our clients optimal outcomes of their
construction projects. We await the challenges ahead
with anticipation.
INDRESEN PILLAY
MESSAGE FROM THE MANAGING DIRECTOR 3

VISION
AND VALUES
We seek to build the best and most valued
relationships in the industry
PURPOSE
Our core purpose is to make a measurable
difference to the value, cost and time of our
clients' projects
VALUES
Our core values are integrity, innovation and
collaboration. We create an environment that
enables our people to take pride in acting with
these values in the things we do
PASSION
We are passionate about recruiting and
developing the best people, working with the
best teams and delivering successful solutions
that respect the environment
GOAL
To provide services that combine to produce the
best project and cost management in our
industry
BBBEE
STATEMENT
Davis Langdon is fully committed to embrace the
principles of the Broad-based Black Economic
Empowerment Bill No 53 of 2003. We have been
independently evaluated and certified in terms of the
act for the code of good practice issued under Section
9(1) gazetted on 9th February 2007 and the results are
as follows:
Score: 65.7%
Level: level 4 contributor
Procurement recognition level: 100%
The above scores have been achieved by quantifying

all the components of BBBEE, viz:
l ownership;
l management control;
l employment equity;
l skills development;
l preferential procurement;
l enterprise development;
l socio and economic development.
Notwithstanding the above achievements, Davis

Langdon has set itself a continuing improvement
target in all the above criteria in order to maintain and
increase our leading role amongst professionals in
the built environment.
BBBEE STATEMENT 5
QUALITY
MANAGEMENT
Davis Langdon introduced a quality management
system to their offices throughout South Africa in 2001.
It is the national policy of the firm that their quality
management procedures provide a system of 'best
practice' that is utilised to control and maintain the
high level of professional service provided to clients
and additionally to promote continuous improvement
of these services.
The system has been developed, established and

documented to ensure that:
l processes needed for the quality management

system, and their sequence and interaction, are
identified and addressed;
l these processes are effectively controlled;
l the resources and information needed to support
those processes are monitored, measured,
analysed and continually improved;
l the system is fully documented by means of a
quality manual containing policies, objectives
and system procedures supported by additional
documentation incorporating operational work
instructions, practice notes and standards;
l all records necessary for demonstrating
conformance to requirements and for analysis
are held in safekeeping.
This quality management system is accredited to the

international standard for quality management, EN
ISO 9001:2000 and it is the view of the firm that
achieving and maintaining this accreditation is an
essential factor in guaranteeing the provision of
professional services of a consistently high standard.
6 DAVIS LANGDON QUALITY MANAGEMENT

A senior consultant to the firm oversees that section
of the practice responsible for maintaining and
continually improving the “best practice” procedures
within the various Davis Langdon offices throughout
the region. Regular surveillance and recertification
audits are conducted by DEKRA Certification (Pty) Ltd,
an international market leader in certification and
testing services, the latest recertification audit being
successfully concluded in mid 2007.
It is anticipated that the maintenance and constant

improvement of the firm's quality management
procedures will certainly ensure that Davis Langdon
retains its position as a leader in the field of
construction cost consultancy and will continue to
provide their clients with an excellent service
conforming to the latest international standards.
QUALITY MANAGEMENT 7
RESEARCH
SUPPORT
There is in general a shortage of 'in-depth' research in
the built environment. Davis Langdon therefore
decided for the benefit of our clients and colleagues, to
contribute to relevant research in a dedicated and
rigorous way.
Research is firstly conducted to support our

knowledge data base and existing activities to deliver
the highest quality and relevant services. Secondly it
serves the purpose to enhance our competitive edge
in order to also deliver cost effective services. Thirdly,
contract research is undertaken on assignment for
clients in order to resolve industry specific problems.
Research activities nationally, regionally and

internationally include amongst others, the following:
l cost research;
l establishing and maintaining cost indices for
various property categories;
l cash flow analysis;
l collaboration, support and advice to universities,
professional bodies and research institutions;
l whole life costing;
l continuing educational workshops;
l industry reports and brochures;
l dedicated research collaboration with our
international offices with specific reference to:
n sport facilities;
n special consultancy services;
n sustainability;
n specialised procurement methods;
n airports;
n building services;
n hotels;
n tax;
n due diligence ;
n tall, large and complex buildings.
8 DAVIS LANGDON RESEARCH SUPPORT

SUSTAINABILITY
In the wake of global warming we are facing a
planetary emergency. The contribution of
construction and operation of buildings to the
destruction of the earth compel us to change the
methods of the past and to adopt environmentally
sustainable development principles.
Davis Langdon, in recognizing our social

responsibilities, formed an international
sustainability group who is active in research and
development of sustainable solutions for
developments. The expertise of our international
partners is extensive and of great value to us as
sustainable practices elsewhere have advanced and
progressed by large measures in recent years. For
example, in the UK the BREEAM rating system, in
Australia the Green Star rating system and in the USA
the LEEDS system have been developed. Through
their relevant Green Building Councils (GBC) they
advocate sustainable principles and methods for
property owners and contractors to adhere and aspire
to in order to achieve their desired green ratings.
It needs to be mentioned that the Green Building

Council South Africa (GBCSA) was established in
2007. Davis Langdon is proud to be associated with
the GBCSA and was in fact instrumental to their
creation by being a founder member. Also, Davis
Langdon assisted the GBCSA on their technical
working groups to recently launch the Green Star SA
Office rating tool. We intend to support them in their
endeavours to develop other rating tools. We also
promote sustainable living in buildings. Most Davis
Langdon offices abroad have either been accredited
or applied to be accredited in terms of ISO14001 in
this regard. The Africa Region decided to follow their
set examples without any further delay.
SUSTAINABILITY 9
Davis Langdon recently hosted many seminars and
published numerous scientific articles on
sustainability. Staff from all geographic regions in
South Africa completed the Green Star SA accredited
professional course and are ready to assist clients
and colleagues to also achieve their social
responsibilities in addition to their financial or other
objectives.
The international sustainability group has developed

various sustainability service lines and many are
currently being developed. Davis Langdon Africa is
fortunate to be ahead of the pack in this regard, as
some of these are readily available from our
international partners, to be adapted for South Africa
and the region.
10 DAVIS LANGDON SUSTAINABILITY

QUANTITY SURVEYING /
COST MANAGEMENT
Davis Langdon provides comprehensive cost
estimating and cost planning services, including
viability analysis, to enable budgets to be established
and approved. Cost control and monitoring
procedures during detail design stage are
dynamically implemented and maintained in order to
keep budgets relevant.
Preparation of procurement documentation to allow
competitive tenders to be called for or contracts to be
negotiated. This may include pre-qualification
documents and formulation of tender and contract
conditions to suit particular circumstances.
Tender adjudication and assistance with contractor or
sub-contractor selection. Being a large practice, we
have a comprehensive construction data bank which
facilitates contract negotiation. Effective cost
planning, cost control and monitoring throughout the
duration of a project, including regular issue of cost
reports and cash flow projections supported by our
excellent IT-infrastructure.
Continuous valuation of work for progress payments
and determining final values throughout the
construction period, including the settlement of the
final account. This is achieved in a manner to ensure
that the client pays for relevant values as and when
expenses are incurred. Our duty of care role to
financial institutions on commercial projects is
normally regarded as an inclusive service.
Value engineering of the designs and concepts to
ensure that optimum value for money is achieved. Our
services include international procurement of any
materials, fittings, equipment and furniture. Principal
agency services, when appropriate, ensure a value
adding management service complementing our cost
control functions.
QUANTITY SURVEYING / COST MANAGEMENT 11

ENGINEERING
Engineering operates as a specialist division within
the greater Davis Langdon group and has developed
specialist skills and applications that enhance the risk
and value management techniques required by the
mining, minerals, metallurgical and petro-chemical
industries. This includes the constitution of dedicated
independent teams specialising in and responsible for
the estimating, procurement and cost management
activities relative to the above stated industries.
Engineering is responsible for many diverse projects
within the above mentioned industries with principle
benefits to our clients being independence,
accountability and evidence of corporate governance.
With offices located in Johannesburg and Klerksdorp,

Engineering operates throughout Africa using
infrastructure support from other local Davis
Langdon offices located in all major centres in South
Africa and Botswana. We employ professional
qualified quantity surveyors, cost managers, cost
engineers, construction programmers, accredited
lead assessors and building surveyors.
In the mining, minerals, metallurgical and petro-

chemical industries, where projects are generally of a
high monetary value, it is most beneficial to involve us
at an early stage in the project cycle. This allows for
strong financial discipline to be imposed on the
project to ensure accurate and structured estimating,
timeous and cost effective procurement, accurate and
up to date maintenance of costs to completion
including the cost management of design changes,
and the timeous close-out of contracts. The
implementation of these principles of financial
management will deliver maximum shareholder
value and it is in this area that Engineering strives to
significantly influence project outcomes to benefit all
stakeholders.
12 DAVIS LANGDON ENGINEERING

Davis Langdon Engineering provides a depth of
experience, expertise and independence, which will
contribute to and complement the client's team. This
is critical particularly in the early phases of a project
when the opportunity to add value, recognise and
define cost, are established. Simultaneously the
formalisation of project principles is equally critical,
through the project, cost management continuing
through to the post-contract period and final
closeout.
ENGINEERING 13
BUILDING SERVICES
COST MANAGEMENT
Davis Langdon Building Services specialist division, a
separate unit within Davis Langdon, draws upon their
unique and extensive knowledge, experience and
expertise to provide financial management and
contract administration of mechanical and electrical
engineering services including the following:
l electrical installation;
l HVAC installations;
l fire protection systems;
l fire detection and evacuation systems;
l access control;
l CCTV;
l lifts, escalators, travelators;
l communication systems;
l building management systems;
l security systems;
l data systems.
Davis Langdon Building Services provides a

comprehensive service including cost advice and
quantity surveying services encompassing the
following:
l cost planning;
l contract procurement;
l tender and contract documentation;
l cost control;
l risk management;
l value management;
l life cycle and whole life costing.
14 DAVIS LANGDON BUILDING SERVICES COST MANAGEMENT

PROJECT
MANAGEMENT
Davis Langdon Project Management provides that vital
independent and professional service to plan, lead,
organise and control the management of projects and
programmes, from inception to reality.
Recognised as one of the world's leading providers of

management and consultancy services, we employ
highly skilled project managers from a broad range of
professional disciplines - offering experience across
a wide range of sectors.
This equips Davis Langdon Project Management with

the in-house skills and market expertise to recognise
potential and define objectives from the outset, whilst
also ensuring the delivery of value and appropriate
management of risk throughout the project cycle.
Our strength lies in an ability to provide a dedicated

service on a local, national and international basis.
Through our whole business approach to managing
projects, we draw on the inherent commercial
strength of the practice whilst also delivering a
creative and people-based service.
Our services can be tailored to suit the needs of the

project and client and include:
l project management;
l client's representative;
l principal agent;
l value and risk management;
l programming and planning;
l project monitoring;
l project consultancy;
l development management.
PROJECT MANAGEMENT 15
Davis Langdon Project Management will invariably
work with teams that are carefully pre-qualified and
selected for their expertise, personnel, enthusiasm
and drive to deliver the required results.
Our project managers work together with our clients

to manage the appointments of the necessary
consultants, including advising on the various
methods of selection, the negotiation and agreement
of their services and fees. In addition, we will provide
a single contact point for the client when dealing with
other third parties, contractors and suppliers.
We are committed to building and managing teams

with a common culture of delivering excellence and
strive to engender healthy and vibrant working
relationships throughout the life cycle of the project.
The growth of the service in recent years has been

built upon strong alliances with long standing clients
and our ability to deliver wherever and whenever
required, on time and within budget on a consistent
basis.
16 DAVIS LANGDON PROJECT MANAGEMENT

LEGAL SUPPORT
Invariably the construction process results in a
number of disputes, ignored they have a tendency to
escalate and often result in arbitration or litigation. In
recognizing this fact Davis Langdon have established
over the years a specialist service line to assist their
clients in the dispute arena. We are equipped to
provide a range of services targeted at being
practical, pragmatic and cost efficient. Our services
embrace, but are not limited to the following:
l assessment of contractors' claims;

l advice on dispute procedures;
l provision of adjudication, mediation and
arbitration services;
l expert witness reports and appearance;
l establishment of quantum relating to claims;
l delay analysis;
l assistance to legal teams.
Davis Langdon is in the unique position of being able

to draw on both national and global networks of
knowledge and expertise. Our legal support services
group has the ability to source leading experts in all
fields of construction for the benefit of legal teams
and their clients. Our aim is to provide expert advice to
reduce risk and to deploy our experience and skills to
the benefit of our clients and legal colleagues in a cost
effective and efficient manner.
LEGAL SUPPORT 17
VALUATION SERVICES
Davis Langdon's valuation subsidiaries, Davis
Langdon Valuation & Building Consultants and
Abalaing Valuers specialise in all types of property
valuations, including replacement cost analyses for
insurance purposes, insurance assessments, estate
appraisals, building inspections and pre-blasting
surveys.
Our professional team has successfully completed an

extensive number of valuations, building inspections
and surveys to date for various financial institutions,
governmental bodies, 'blue-chip' companies and
private individuals.
We offer a countrywide service and are equipped to

exceed client expectations on all levels, including
quality, turnaround time and pricing structure. We
comply with the codes of conduct of the South African
Council for the Property Valuers Profession and South
African Institute of Valuers.
18 DAVIS LANGDON VALUATION SERVICES

SPECIFICATION
CONSULTANCY
As the world's leading specification consultancy firm,
Davis Langdon Schumann Smith is well established in
South Africa.
An experienced team, based in Johannesburg,

facilitates local delivery of specifications, in particular
'Africa Spec™', which provides a means of accurate
communication between client, designer and those
carrying out the construction.
Our service has been prepared for use by employers,

architects and engineers.
We compile project specific specifications to reflect:
l the design;
l the form of contract;
l the procurement process;
l programme requirements;
l national standards and regulatory standards.
Whilst tailoring the specifications to suit the needs of:
l design teams;
l developers;
l retailers;
l government bodies;
l universities;
l private practices;
l manufacturers;
l other parties involved in the design/construction
process.
We underwrite our specifications by the guarantees of

knowledge, research, experience and professionalism.
Through them we aim to add value, ensure quality and
reduce the risk on projects.
SPECIFICATION CONSULTANCY 19
A comprehensive specification reduces the
contractual risk of all parties, avoids post contract
disputes and ensures that everyone is aware of what is
being bought before committing to a contract.
Specifications must reflect both the designer's

responsibility as set out in his appointment, and the
responsibilities of the contractor under the terms of
the contract. Our specifications are tailored to suit the
needs of the parties involved in the design/
construction process.
As specification consultants, our role is to:
l support the design team;

l prepare appropriate documentation;
l assist in the procurement process.
We operate as a pro-active member of the design

team, attending design review meetings and
producing appropriate project specifications that will:
l maintain the architect's/designer's intent;

l set accurate technical criteria;
l set achievable performance criteria;
l allow specialist contractors to provide a design
response;
l reflect the contractual requirements;
l form the basis for checking compliance.
As further services to the construction professionals:
With our joint venture partners we have brought to

South Africa a specification software package which
has been tried and tested overseas for almost thirty
years.
National Building Specification (NBS) is a joint venture

between RIBA Enterprises, Klassidex and Davis
Langdon Schumann Smith.
20 DAVIS LANGDON SPECIFICATION CONSULTANCY

NBS Building SA is a library of pre-written
specification clauses with guidance for each clause
appearing alongside for speedy referral. The content
is delivered on tried and tested software, and
specifications are edited on screen.
The NBS Building SA technical team have written the

content with the most up to date technical information
available and this content, together with its
associated guidance clauses will be expanded and
updated regularly.
As another development of our service line:
We have recently introduced the concept of 'Design

Team Management' to South Africa. Close
collaboration with design teams has led to the
evolution of our design team management service,
the purpose of which is to facilitate the design process
by managing issues that impinge on it. This service is
based on our contractual, technical and
organisational knowledge, deployed to support the
working methods of design firms and to protect their
interests.
Managing design teams allows us to add value

because we understand the design process. We also
understand the interface between design and
construction, and add knowledge of advanced
construction techniques, new procurement routes
and industrial technology to the design team.
SPECIFICATION CONSULTANCY 21
APPLICATION OF
INCLUSIVE RATE
ESTIMATES
22
This section highlights the inherent difficulties and
pitfalls that may be experienced when inclusive or
single rates are used to establish the estimated cost
of a particular building.
Construction cost estimation is complex.

Comprehensive exercises based on detailed and
accurate information are required to achieve reliable
levels of comfort. For various reasons however,
decisions are often based on inclusive rate estimates,
i.e. rate per m² of construction area or rate per unit in
number.
The most widely used method of quick approximate

estimating to obtain an indication of the construction
cost of a building is by the rate/m²-on-plan method. It
is often also referred to as 'order of magnitude'-type
methods of cost estimation. It certainly is both quick
and convenient but it can be very misleading if used
indiscriminately without care being taken in the
calculation of the construction area (m²) and the
selection of the rate.
Comparisons of the costs of various buildings are

often made by comparing the individual rates/m²
without due consideration being given to a number of
factors that can affect the rate/m² to a substantial
degree.
Very often the cost of a building is expressed in R/m²

and the unit cost is ignored, if calculated at all. This
rate/m² is then used as the sole yardstick of what the
building costs. For example, a security guard's
shelter measuring 2m x 2m consisting of brick walls
with windows, one door and a simple roof
construction may cost R6 000/m². This rate when
compared with the rate for a 200m² house containing
plumbing, carpets, etc. at R4 700/m² would seem to
be very expensive. Yet in fact the unit cost of the
shelter is R24 000 compared with R940 000 for the
house.
APPLICATION OF INCLUSIVE RATE ESTIMATES 23
The following are a few of the important criteria to be
taken into account when rates/m² are considered:
1. SPECIFICATION
Two buildings having identical shape and

accommodation can have vastly different R/m² rates
should the one building have finishes of a differing
standard from the other. For example, expensive
carpets in lieu of vinyl floor tiles can increase the rate
by R100/m².
24 DAVIS LANGDON APPLICATION OF INCLUSIVE RATE ESTIMATES

2. WALL TO FLOOR RATIO - PLAN SHAPE
The most economical shape of a building is a square.

This shape requires the minimum wall length to
enclose a given floor area, e.g.
Case A
40m
40m
Area 1 600m²
Wall length 160m
Wall height 3m
Wall area 480m²
Wall floor ratio 480/1 600
Cost of external facade
in terms of R/m² of
floor area to each R/m²
of facade area 30.0%
Case B
100m
16m
Area 1 600m²
Wall length 232m
Wall height 3m
Wall area 696m²
Wall floor ratio 696/1 600
Cost of external facade
in terms of R/m² of
floor area to each R/m²
of facade area 43.5%

The rate/m² on plan of a facade costing R600/m² on
elevation in each case is:
Case A R600 x 30.0% = R180/m²

Case B R600 x 43.5% = R261/m²
The reader with a good knowledge of mathematics

will correctly fault the above argument by promoting a
circle as being the geometric shape that requires the
minimum wall length to enclose a given floor area. In
very few cases however, this is the most economical
plan shape of a building, as for various reasons the
cost of constructing a circular as opposed to a straight
external envelope is generally greater than the saving
in quantity of the envelope. As the length of the
perimeter of a circle is 11.4% less than that of a
square enclosing the same area, the unit cost of the
circular envelope should not exceed the unit cost of
the straight envelope by more than 12.8% for the
circle to be the most economical plan shape.
3. FLOOR TO CEILING HEIGHTS
Two buildings of identical plan shape and area but of

different floor to ceiling heights will have different
rates/m² due to the additional cost of walling, finishes,
etc. in the building with the higher floor to ceiling
height.
4. PLUMBING, MECHANICAL AND

ELECTRICAL INSTALLATIONS
The concentration of plumbing installations has a

marked effect on the rate/m² of the building. The cost
of a toilet block per m² is much greater than that of a
house containing one bathroom because the high cost
of the bathroom area is spread over the less
expensive areas of the remainder of the house.

Similarly in office blocks, factories, etc. the rate/m²
will depend greatly on whether air-conditioning,
security systems, sprinklers, smoke detection
systems, specialised electrical installations, acoustic
treatment or other specialised installations are
incorporated into the design.
5. CONSTRUCTION AREAS
The rate/m² for a building having large balconies or

access corridors that have been included in the
construction area cannot be compared with the
rate/m² for a building not having similar areas of low
cost.
6. INTERNAL SUBDIVISIONS
The rate/m² for open plan offices should not be

compared directly with the rate/m² for offices having
internal partitions without the relevant adjustments
being made. The inclusion of partitions can increase
the overall rate/m² by up to R230/m² of office area.
7. PARKING
Should the building in question contain certain areas

for parking within the building area, the average
rate/m² will be less than for a building having the
identical accommodation but with parking outside the
building structure, e.g.

Case A
Building having parking within the building area
OFFICES
Plan area 600m2/floor
Construction area 3 000m2
OFFICES
OFFICES
OFFICES
PARKING (600m2) Basement
Cost of building
Offices 2 400m² @ R7 000 = R 16 800 000
Parking 600m² @ R3 000 = R 1 800 000
Total R 18 600 000
Average rate/m² R 6 200
Case B
Building having parking outside the building structure

and on grade
OFFICES
Plan area 600m2/floor
Construction area 2 400m2
OFFICES
OFFICES
OFFICES PARKING (600m2)
Cost of building
Offices 2 400m² @ R7 000 = R 16 800 000
Parking 600m² @ R 300 = R 180 000
Total R 16 980 000
Average rate/m² R 7 075

Under Case B the area of parking is not included
as part of the 'construction area' for purposes of
calculating the rate/m².
Similarly the rate/m² for supermarket/

hypermarket shopping centres should be qualified
as to whether the cost of on-site parking and
ancillary site development has been included,
which cost could be in the region of R400/m² of
construction area.
There are numerous further points of consideration

that should be taken into account in addition to those
given above. Amongst these are siteworks (peculiar
to each specific contract), number of storeys, floor
loadings, column spans, concentration of joinery and
other fittings, overall height of building, open atrium
upper volumes, etc.
In conclusion, rates/m² must be used with

circumspection and the degree of accuracy of the
answers provided must be considered to be in direct
proportion to the amount of research and study
undertaken to establish the rate for the building in
question.

APPROXIMATE
INCLUSIVE
BUILDING COST
RATES
30
INTRODUCTION
The following, unless otherwise stated, is a list of

approximate inclusive building cost rates per m² of
construction area for various building types in the
Gauteng region. Rates are based on 1 July 2009 and
therefore represent the average expected building
cost rates for 2009. It is stressed that these rates are
purely of an indicative nature and should be used with
circumspection, as they are dependent upon a
number of assumptions. See 'Application of inclusive
rate estimates' herein.
The area of the building expressed before in m² is

equivalent to the 'construction area' where
appropriate, as defined in the 'Method for Measuring
Floor Areas in Buildings' First Edition (effective from
1st August 2005), published by the South African
Property Owners Association (SAPOA).
REGIONAL VARIATIONS
Construction costs normally vary between the

different provinces of South Africa. Costs in the
Western Cape and KwaZulu-Natal, specifically upper
class residential, for example, are generally
significantly higher than Gauteng due to the demand
for this accommodation. Rates have therefore been
based on data received from the Gauteng province,
where possible. However, specific costs for any
region can be given upon request from any Davis
Langdon office in that region.
BUILDING TYPE
Rates include the cost of appropriate building

services, e.g. air-conditioning, electrical, etc. but
exclude costs of site infrastructure development,
parking, any future escalation, loss of interest,
professional fees and VAT.
APPROXIMATE INCLUSIVE BUILDING COST RATES 31

Offices Rate per m² (excl VAT)
Low rise office park

development with standard
specification 800 --R R 5 700
RR 44800 5 700
Low rise prestigious office

park development 200 --R R 9 200
RR 66200 9 200
High rise tower block with

standard specification 000 --R R 9 200
RR 77000 9 200
High rise prestigious tower

block 000 --R R1111
RR 99000 000
000
Note: The aforementioned rates include appropriate

tenant allowances incorporating carpets,
wallpaper, louvre drapes, partitions, lighting,
air-conditioning and electrical reticulation.
Parking
Parking on grade including

integral landscaping and
ground preparation 300 --R R 400
R R 300 400
Structured parking above

ground 500 --R R 3 200
R R 22500 3 200
Parking in semi-basement 500 --R R 3 400

R R 22500 3 400
Parking in basement 600 --R R 3 800

R R 22600 3 800
Retail
Suburban strip shopping/

value centre 500 --R R 6 800
R R 44500 6 800
Regional shopping centre

comprising supermarket
chain store, national
chains, line shops and
enclosed malls 800 --R R 8 000
R R 66800 8 000
Note: The above rates include the cost of tenant

requirements and specifications of national
chain stores.
32 DAVIS LANGDON APPROXIMATE INCLUSIVE BUILDING COST RATES
Industrial Rate per m² (excl VAT)
Industrial warehouse
including small office area
and change facilities within
structure (architect/
engineer-designed):
- steel frame, corrugated
steel cladding and roof
sheeting R 22300
300 --R R 3 500
3 500
- steel frame, brickwork
to ceiling height,
corrugated steel cladding
above and roof sheeting R 22700
700 --R R 3 900
3 900
- administration offices,
ablution and change
room block R 44600
600 --R R 5 400
5 400
- cold storage facilities R 88000
000 -- R R1010
000000
Residential Rate per no (excl VAT)
Site services to low cost

housing stand (250-350m²) R 20
20000
000 -- R R
3030
000000
Rate per m² (excl VAT)
RDP housing R 11000

000 --R R1 200
1 200
Low cost housing R 11800

800 --R R2 900
2 900
Simple low rise apartment

block R 44200
200 --R R5 900
5 900
Duplex townhouse
- economic R 44200
200 --R R6 000
6 000
Prestige apartment block R 66500

500 -- R R1010 000
000
Private dwelling houses:

- economic R 2 900 R 2 900
- standard R 4 100 R 4 100
- middle class R 4 700 R 4 700
- luxury R 6 900 R 6 900
- exclusive R 9 500 R 9 500
- exceptional ('super luxury') R 16000
16 000 -- R R3232
000000
Outbuildings R
R 11800
800 --R R3 000
3 000
Rate per no (excl VAT)
Carport (shaded) - single R 2 600 R 2 600

- double R 5 000 R 5 000
Carport (covered)- single R 3 800 R 3 800

- double R 7 000 R 7 000
Swimming pool
- not exceeding 50 kl R 55 000 R 55 000
- exceeding 50 kl and not
exceeding 100 kl R 55
55000
000 -- RR 9090
000
000
Tennis court
- standard R120 000 R 120 000
- floodlit R140 000 R 140 000
Clinics
Clinic - 150-bed, 5-theatre

(excluding doctors’
accommodation) RR 530
530000
000--RR800 000/bed
800 000/bed
Hotels
Limited service RR 380

380000
000-- RR550 000/key
550 000/key
Resort style R 1 300 000 - R 1 500 000/key
Luxury RR11 500

500 000 - -RR22100
100000/key
Note: The rates stated above for a luxury hotel is

based on a hotel having a ratio of
approximately 35m² of back-of house and
public areas such as conference rooms,
entrance foyers, lounges and restaurants per
room. This ratio can vary considerably with
different types of hotels, e.g. limited service
and resort hotels, CBD business hotels or
casino complexes.

Studios Rate per m² (excl VAT)
Studios - dancing, art

exhibitions, etc R 8 000
8 000 -- RR 11
11000
000
Conference Centres
Conference centre to
international standards R 1515 000 -- RR 19
000 19000
000
Retirement Centres
Dwelling houses
- luxury R 6 100 R 6 100
Apartment block
- luxury R 6 400 R 6 400
Community centre
- luxury R 8 500 R 8 500
Note: The above rates exclude frail care facilities
Schools
Primary school R 4 000

4 000 -- RR 5 100
5 100
Secondary school R 4 300
4 300 -- RR 5 600
5 600
Stadiums Rate per no (excl VAT)
Stadium to PSL standards

including partial roofing
and seating to main stand
and VIP areas, public
seating on concrete stands
and facilities, change
rooms, field preparation,
irrigation, drainage, access
control, PA system and
floodlighting R 000
R 20 20 000- - R 30
30 000
000 /seat
/seat

Stadium to FIFA standards

including roofed public
seating, private suites, bar
facilities, change rooms,
press and VIP areas, field
preparation, irrigation,
drainage, access control,
PA system, video displays,
floodlighting and CCTV R 45 000 - R 60 000 /seat
Stadium pitch to FIFA

standards including field
preparation, sub-soil
drainage, grassing,
irrigation and 24-month
maintenance R12 000 000 - R15 000 000
Prisons
New generation prison R 160 000 - R 190 000/inmate
BUILDING SERVICES
The following rates are for building services (mechanical

and electrical) applicable to typical building types in the
categories indicated. Rates are dependent on various
factors related to the design of the building and the
requirements of the system.
In particular the design, and therefore the cost of air-

conditioning can vary appreciably depending on the
orientation, shading, extent and type of glazing, external
wall and roof construction, etc.

Electrical installation Rate per m² (excl VAT)
Office buildings - standard

installation R280 280- -RR400 400
R
Office buildings -
sophisticated installation RR 400400 -- RR 500500
Residential R300 300- -RR420 420

R
Shopping centres R450 450- -RR500 500

R
Hotels R600 600- -RR750 750

R
Electronic installation (offices)
Access control RR75 75 -- RR 150150

Fire detection RR65 65 -- RR 120120
CCTV R130 130- -RR170 170

R
Data installation R
R450 450- -RR650 650
Fire protection installation (offices)
Sprinkler system including

hydrants and hose reels
(excluding void sprinklers) R130 130- -RR200 200
R
Air-conditioning installation
Ventilation to parking/
service areas R150 150 -- RR 300300
R
Office buildings - console

Units R400 400- -RR480 480
R
Office buildings - console/

split units R500 500- -RR650 650
R
Office buildings - package

units R650 650- -RR900 900
R
Office buildings - central

plant R
R900 900- -RR1 200
1 200

Rate per m² (excl VAT)
Residential - split units R

R600 600- -RR950 950
Shopping centres - split

units R
R550 550- -RR680 680
Shopping centres -
package units R
R600 600- -RR1 200
1 200
Hotels - public areas R

R900 900- -RR1 500
1 500
Hospitals - split units to

wards R 1 200 - -RR1 400
1 200 1 400
Hotels - console units RR1111000

000- -RR16
16000
000/key
/key
Hotels - split units RR2323000

000- -RR32
32000
000/key
/key
Hotels - central plant RR4040000

000- -RR60
60000
000/key
/key
Hospitals - operating
theatres RR200
200000
000--R700
R700000/theatre
000/theatre
Note: See note on page 34 with regard to hotels.

INTERNATIONAL
COSTS
39
INTERNATIONAL
BUILDING COSTS
The following table (Africa) (see page 41) presents, in
summarised form, the approximate estimated costs
per square metre for two different types of office
buildings, namely:
1. Three-storey commercial offices, air-conditioned,

with no basement and including allowance for
tenants' installation.
2. High rise prestige offices, air-conditioned, with no

basement and including allowance for tenants'
installation.
The indicated approximate costs include mechanical

and electrical installations but exclude professional
fees.
These costs are indicative only and should be

considered in the context of acceptable building
standards in each particular country.
These standards, both at a technical level and

pertaining to quality, do vary from country to country,
therefore the building costs must be seen as being for
the normal standards prevailing in each particular
region. This being the case, these costs must be used
with circumspection.
The cost data under the international building cost

rate comparison heading was made available by Davis
Langdon Australasia and their assistance in this
regard is acknowledged with thanks.
40 DAVIS LANGDON INTERNATIONAL BUILDING COSTS

Note: The conversion to US Dollars is based on
approximate exchange rates as at December
2008 (i.e. R10.00/USD).
Rates represent the average expected
construction cost rates for 2009 and exclude
VAT, but include general sales tax (GST) where
applicable.
INTERNATIONAL BUILDING COSTS 41
Note: Large fluctuations in exchange rates can
create short-term anomalies.
Prices exclude land, professional fees, tenant
fitout, equipment and VAT.
* Incl FF&E
INTERNATIONAL PRESTIGIOUS OFFICE
RENTAL COMPARISON: USD/m2 p.a.
INTERNATIONAL RENTAL COSTS 43

Note: Rates are applicable as at 1 January 2009 and
exclude VAT, but include GST where applicable.
Above are gross rentals and include operating

costs and municipal costs, but exclude VAT and
electricity/water consumption.

BUILDING
COST
45
1. BUILDING COST
The meaning of building cost depends on the

application thereof in context. A building contractor,
for example, may refer to building cost as the cost of
labour, material, plant, fuel and supervision. In
contrast, a developer may refer to building cost as
either the tender price from the contractor or to the
ultimate cost of the project, which could include
professional fees, plan approval fees, escalation, loss
of interest, etc.
For the purposes of this document building cost shall

be deemed to mean the tender price (or negotiated
price) submitted by the building contractor.
2. ESCALATION RATE
There seems to be two popular methods of

calculating and expressing percentage annual
increases, namely the average rate and the year-on-
year rate. The average rate is of no real use in
calculating escalation and is of general interest only.
The year-on-year rate should be used in escalation
calculations, taking cognisance of actual project
programmes.
The average rate compares the indices for each

month (or quarter) of the year with those of the
corresponding months (or quarters) of the preceding
year and calculates the average of these, which is
then quoted as the average annual increase for that
particular year.
The year-on-year rate compares the January (or

December) index with the index for the corresponding
month of the previous year and reflects the increase
over that year.
46 DAVIS LANGDON BUILDING COST

There could be a significant difference in the two rates
in question, for example in 2002 the year-on-year rate
of building cost inflation in South Africa was 12.3% but
the average annual rate (comparing monthly indices)
was 15.7%.
3. CALCULATION OF ESTIMATED ESCALATION OF

CONSTRUCTION CONTRACTS
Pre-contract
Construction cost, for various reasons, change on an

on-going basis. Provision should therefore be made
for the changes in tender prices during the period
from the date of the estimate to the expected tender
date. When the said increase is added to the
estimated current building cost, the total will equal
the anticipated tender amount.
It is calculated by multiplying the estimated current

building cost by the average estimated monthly
percentage increase and by the number of months
from the date of the estimate to the tender date.
Contract price adjustment
Provision is made for the escalation in building cost

during the contract period. The Joint Building
Contracts Committee - Series 2000 Contract Price
Adjustment Provisions (JBCC CPAP) formula provides
for 85% of the contract amount to be subject to
escalation adjustment - the remaining 15% to stay
fixed. Furthermore, a factor must be introduced to
take account of the cash flow of payments during the
construction period - usually 0.6 is acceptable if a
short method of calculation is employed.
BUILDING COST 47
The total escalation during the contract period is
therefore calculated by multiplying the anticipated
tender amount by 0.85 and 0.6 and then by the
estimated monthly percentage increase indicated by
the relevant indices incorporated in the JBCC CPAP
formula and by the contract period expressed in
months.
4. TENDER PRICE ESCALATION
The annual year-on-year increases in building costs

(i.e. tender prices) based on the indices published by
the Bureau for Economic Research, University of
Stellenbosch (BER) (January to January of each year)
and for JBCC CPAP formula (work group 181
'commercial/industrial buildings') published by
Statistics South Africa (P0151), are as follows:

Note: The average annual increases indicated by the
BER in their publications are the average of
the quarterly increases for that year and may
not correspond to the above year-on-year
increases.
The difference between the tender price
escalation and the escalation according to the
indices incorporated in the JBCC CPAP
formula for any one period, may be attributed
to the market factor, which incorporates the
contractor's mark-up, productivity, availability
of materials, etc.
* Forecast based on information provided by
Medium-Term Forecasting Associates
Building Economists, Stellenbosch.
BUILDING COST 49
5. TENDER CLIMATE
The column marked 'TMI' (tender market indicator),

gives an indication of the tender climate. The building
cost index, as published by the BER and which is
based on tender prices, has been deflated by the index
for JBCC CPAP work group 181, which is based on the
cost of labour and material. The result is the
movement of tender prices excluding the influence of
market costs of labour and material, giving an
indication of competitiveness of tendering. It
represents a comparison or rate of change of BER
and JBCC CPAP indices.
When the TMI (see graph on page 55) shows a

downward gradient, this indicates a favourable tender
market, i.e. the next point is numerically less than the
previous, which results from the calculation of BER ÷
JBCC CPAP and indicates that the increase in BER
(tender index) is less than the increase in the JBCC
CPAP index; therefore a favourable tender market
from the viewpoint of the employer exists.
Conversely, if the graph has an upward gradient, the

increase in BER is greater than the increase in JBCC
CPAP indices indicating an unfavourable tender
market from the viewpoint of the employer and it
would be prudent to recommend negotiation as
opposed to tendering.
This tendency is also apparent on the cost indices

graph (see page 54). When the two lines (JBCC CPAP
and BER) converge, i.e. JBCC CPAP is 'dropping' and
BER is 'rising', then rather negotiate. When the two
lines diverge, i.e. JBCC CPAP is 'rising' and BER is
'dropping', then rather proceed to tender.
Base dates: To allow for comparison of indices, a

factor has been introduced resulting in an equal base
to both BER and JBCC CPAP indices (i.e. January
2000 = 100).

6. UNIQUE LARGE SCALE PROJECTS
Building cost estimation seems to become more

complex when unique circumstances prevail. For
example, and in anticipation of the Soccer World Cup
2010, many new construction works and associated
infrastructure projects are currently under
construction. Projects of such magnitude can only be
constructed by major contractors possessing the
required expertise and resources. It is apparently
experienced throughout that the unit costs of these
projects are significantly higher than originally
anticipated. Selected contractors at this level have
little competition, and based on a favourable supply
and demand market for them, priced accordingly,
resulting in clients' cost overruns, causing severe
pressure on budgets.
7. VALUE ADDED TAX
As the majority of developers are registered vendors

in the property industry, any value added tax (VAT)
paid by them on commercial property development is
fully recoverable. Therefore to reflect the net
development cost, VAT has not been allowed for in the
above rates. Should the gross cost (i.e. after VAT
inclusion) be required, then VAT at the ruling rate
(currently 14%) should be added to all the above
rates.
Cognisance should be taken however, of the effect of

VAT on cash flow over a time period. This will vary
according to the payment period of the individual
vendor but in all cases will add to the capital cost of
the project to the extent of interest on the VAT
outstanding for the VAT cycle of the particular vendor.
BUILDING COST 51
GRAPHS
BER AND JBCC CPAP
52
JANUARY TO JANUARY
%Change
20
19
18
17
16
15
14
13
12
11
10
3
PERCENTAGE
0 00 01 02 03 04 05 06 07 08 09 10 11
YEAR
BER
JBCC CPAP
GRAPHS: BER AND JBCC CPAP 53

JANUARY INDICES
360
340
320
300
280
260
240
220
200
180
160
140
120
100
00 01 02 03 04 05 06 07 08 09 10 11 12
YEAR
BER
JBCC CPAP
54 DAVIS LANGDON GRAPHS: BER AND JBCC CPAP

TENDER MARKET INDICATOR
BER deflated by JBCC CPAP
1.45
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
00 01 02 03 04 05 06 07 08 09 10 11
YEAR
Note: This graph gives an indication of the tender

climate. It is the result of the relationship
between BER and JBCC CPAP. Refer section
5, page 50.
GRAPHS: BER AND JBCC CPAP 55

METHOD FOR
MEASURING
RENTABLE AREAS
56
INTRODUCTION
In the past many landlords and developers have

derived methods for calculating the rentable areas in
buildings. The current, most commonly used is the
method recommended by SAPOA entitled 'Method for
Measuring Floor Areas in Buildings' First Edition
(effective from 1 August 2005). It replaces the
document 'The Sapoa Method for Measuring Floor
Areas in Commercial and Industrial Buildings'
(updated August 1991). It should be noted, however,
that the latest edition is approved for use from the 1st
of August 2005 and that it should not be applied
retrospectively.
Notwithstanding or detracting from the above

publication, and by kind permission of SAPOA, we
have abbreviated and simplified for easier
understanding the definitions contained in that
document, together with our comments on the use of
rentable areas as follows:
The document separately provides methods for

measuring floor areas of:
l offices of all types;

l retail developments, including malls, stand
alone, strip and value centres/warehouses;
l industrial developments, including factories,
warehouses, mini-units and trading
warehouses, multi-storey and the like;
l residential buildings, including houses, flats/
apartments, townhouses, cluster houses, etc.
For 'offices of all types’ referred to above, the

following definitions and explanations are applicable:
METHOD FOR MEASURING RENTABLE AREAS 57

1. THE BASIS
The basis used in calculating the rentable area, is the

measurement of useable area together with common
area and supplementary area, which is determined at
each level of offices. Unless otherwise indicated, the
unit of measurement is given in square metres (m²).
2. AREA DEFINITIONS
2.1 Construction area
The entire covered built area; this is the sum of the

areas measured at each floor level over any external
walls to the external finished surface.
Only the lowest levels of atria are to be included, and

all openings on other levels to form atria, are to be
excluded.
2.2 Rentable area
The total area of the building enclosed by the

dominant face, adjusted by deducting major vertical
penetrations. No deduction shall be made for
columns.
Its intended use is in determining the revenue

producing area of a building, which comprises
rentable area, supplementary area and parking. It is
also used by those analysing the economic potential
of a building.
Rentable area shall have a minimum floor-to ceiling

height of 1.5m.
Rentable area comprises useable area plus common

area.
Rentable area excludes supplementary area, which

may produce additional revenue.
58 DAVIS LANGDON METHOD FOR MEASURING RENTABLE AREAS

2.3 Useable area
Area capable of exclusive occupation by the tenant.

The total area of the building enclosed by the
dominant face, adjusted by deducting all common
area and major vertical penetrations. No deduction
shall be made for columns.
Its intended use is to be the essential part of rentable

area and the basis for the apportionment of common
area.
2.4 Common area
Common area is an area to which the tenant has

access and/or use, and is part of rentable area.
Primary common area of the building is apportioned
to tenancies pro-rata to the useable area of that
tenancy. Secondary common area is apportioned only
to tenancies that it services.
Common area has two components:
l Primary common area comprises all rentable

area on a given floor, that is not useable area,
together with remote common area, which
comprises areas such as entrance foyers, plant
and service rooms, or any other portion of
rentable area not located on the given floor.
l Secondary common area comprises areas

beyond primary common area giving access to
multiple tenancies. Accordingly, this area may
vary over the life of a multiple tenancy building.

2.5 Supplementary area
Any additional revenue-producing component that

falls outside of the definition of rentable area.
Supplementary area need not be weatherproof, and
includes - for example - storerooms, balconies,
terraces, patios, access/service passages and
signage/ advertising areas and parking areas
demarcated for the use of the tenant.
Parking bays shall be given in number.
3. GENERAL DEFINITIONS
3.1 Atrium
A weatherproof interior space, accessible and

capable of use by the tenant at the lowest level. Voids
in floors above atrium space shall not be included in
rentable area.
3.2 Entrance foyer
A portion of remote common area including

associated adjacent rooms and lobby.
Lift lobby and entrance foyers that occur together

with parking floors (not adjacent to office areas) shall
be remote common area.
3.3 Major vertical penetrations
Stairs and landings, lift shafts, flues, pipe shafts,

vertical ducts, and the like, and their enclosing walls;
exceeding 0.5m² in area shall be deducted from
rentable area.

3.4 Remote service areas and plantrooms
Remote refuse rooms, electrical sub-stations,

transformer rooms, central air-conditioning
plantrooms and lift motor rooms shall be included in
primary common area.
3.5 Storage areas
Dedicated storage areas within useable area, shall be

included as useable area.
Dedicated storage areas are separately listed as

supplementary areas.
4. RETAIL, INDUSTRIAL, RESIDENTIAL AND OTHER

DEVELOPMENTS
Similar provisions have been made for measuring

floor areas of retail, industrial and residential
buildings referred to above. For detailed information
it is suggested that the relevant sections of the said
document be carefully studied.
Above method is designed to accommodate the

measurement, as far as practical, of most building
types, however, certain building types such as hotels,
leisure and sport centres, petrol stations, hospitals,
law courts, retirement villages and others may only
be able to utilise the underlying principles adopted
within this method.

GENERALLY
Developers and financiers are constantly attempting

to either reduce building costs or increase rental
levels to achieve higher returns. When these
parameters are exhausted, it becomes incumbent on
the architects and designers to design more
efficiently. One must therefore understand the
complete 'SAPOA Method for Measuring Floor Areas
in Buildings', First Edition and implement the various
facets of the definitions to achieve higher efficiencies
between the various areas.
The initial return is more sensitive to an increase in

rental income (which can be affected by increasing
the rental area) than the corresponding percentage
reduction in construction costs.
Once again, the above has been produced as a quick

guideline only, and should not be used in preference
to the SAPOA publication, which is far more
comprehensive and detailed. We are thankful to
SAPOA for their permission to use extracts from this
publication.

RETURN ON
INVESTMENT
63
1. CRITERIA TO BE EMPLOYED
There are two distinct criteria generally used for

evaluating the financial viability of a property
investment, namely:
l The initial return; and

l The cash flow analysis.
2. THE INITIAL RETURN
The initial return is based on the net income during

the first year of operation of the development. The
return is expressed as a percentage per annum of the
anticipated capital investment. Escalation in
construction cost and cost of capital are both taken
into account in an effort to incorporate the 'time value
of money'.
The major advantage of employing the initial return

method is that expenses and income do not have to be
escalated too far into the future and these are
therefore relatively accurate and relatively easily
understood in today's money terms. The fact that the
first year of operation may have a higher vacancy
factor than subsequent years should be ignored when
the initial return is calculated in order to reflect long
term potential more accurately.
The initial return should be qualified as follows:
l All expenses and income have been escalated to

the construction completion date.
l Interim income received prior to the
construction completion date has been
deducted from the capital investment after
adjusting for operating expenses and cost of
capital.
64 DAVIS LANGDON RETURN ON INVESTMENT

l The returns are expressed as percentages of the
escalated capital investment and do not take
into account loans, loan repayments or interest
charges on loans.
l The calculated returns are for the first complete
year of operation only and do not cater for the
following:
n the project may not reach full maturity during

the first year of operation;
n vacancies;
n recoupment of capital during the income-
bearing period of the investment or realisation
value of the investment at the end of the
investment period;
n income tax.
3. CASH FLOW ANALYSIS OVER A PREDETERMINED

PERIOD
In the cash flow method the income and expenditure

cash flow over the economic lifespan of the
investment is taken into account. Usually an internal
rate of return (IRR) and/or a net present value (NPV) is
employed to evaluate the financial viability.
The NPV (discounted cash flow) method works as

follows: determine the sum of all cash flows (both in-
and outflows and initial investment) and discount to
present values at the project's cost of capital. With a
positive NPV the project can be accepted and it should
be rejected if the NPV is negative.
The IRR is the rate of interest that equates the present

value of the expected future net income with the
present value of the cost of the investment. The NPV
would therefore be exactly zero if the IRR is used as
the discount rate. The IRR of an investment is
generally used by institutional investors, as it is a
comparative indication of the profitability of
alternative investment options.
RETURN ON INVESTMENT 65
A weakness of the IRR calculation is the fact that an
implicit assumption is made that cash flows are
reinvested at the project's own IRR. The modified
internal rate of return (MIRR) overcomes this problem
by assuming that cash flows are reinvested at the cost
of capital rate (or any other given rate), and may be
calculated in addition. As the cost of capital rate is
normally determined at a lower rate than the IRR, it
can be assumed that the MIRR-calculation will always
render a lower result.
The assumptions on which the cash flow return is

based should be listed. These should inter alia
include the assumed investment period (e.g. 20 years
after the construction completion date), that income
has been taken into account at the beginning of each
month and expenditure at the end of each month, the
terminal value, escalation in rental and operating
expenses over the investment period, etc.
It is suggested that, where applicable, a

comprehensive financial viability analysis should
incorporate both the initial return and the cash flow
method of evaluation. It is of significance to notice by
informal observation, by the experienced analyst, that
there is a close relationship between the initial return
and the IRR - to be applied with care, however!

EXAMPLE
Total capital expenditure

(investment) R100 000 000
Rental in first year (net income) R 10 500 000
Initial return in first year 10.50%
Escalation in net rental income 9.00% p.a.
Net cash flow
Year 0 -100 000 000

Year 1 10 500 000
Year 2 11 445 000
Year 3 12 475 050
Year 4 13 597 805
Year 5 14 821 607
Year 6 16 155 552
Year 7 17 609 551
Year 8 19 194 411
Year 9 20 921 908
Year 10 22 804 879
Year 11 24 857 319
Year 12 27 094 477
Year 13 29 532 980
Year 14 32 190 948
Year 15 35 088 134
Year 16 38 246 066
Year 17 41 688 212
Year 18 45 440 151
Year 19 49 529 764
Year 20 53 987 443
(+ terminal value) 560 441 075 614 428 518
The IRR with 9.00% annual escalation in rental is

19.50%.
RETURN ON INVESTMENT 67
The terminal value is subjective and in this example
has been assumed as the capitalised value of the
anticipated rental in year 21 (i.e. R53 987 443 + 9.00%
= R58 846 313) capitalised at the initial yield, i.e.
10.50%.
Should the terminal value be assumed to be nil (this is

unlikely as the land parcel will always have a value),
the IRR drops to 16.92%.
A rule of thumb for the calculation of the approximate

IRR for an investment is that it is equal to the sum of
the initial return plus the escalation rate (assumed to
be constant over the investment period), provided that
the terminal value is calculated as in the given
example, i.e. the capitalised value of the anticipated
rental in the year after disposal assuming a
capitalisation rate equal to the initial return.
Thus, in the given example, the initial return is

10.50%, the escalation rate is 9.00% and the
approximate IRR is the sum of the two, i.e. 19.50%.

RESIDUAL
LAND VALUE
69
INTRODUCTION
The calculation of the residual land value for a

predetermined rate of return, i.e. what a developer
can afford to pay for a parcel of land given a specified
return for a particular development, is as follows:
Return = net annual income

total capital outlay (TCO)
= net annual income

y+x
(where y = TCO excluding land value

and its corresponding loss of interest
and x = land value and its
corresponding loss of interest)
Therefore x = net annual income -y

return
Now x = land value + loss of interest

= future value of land
Therefore to obtain present land value, i.e. land value

excluding its corresponding loss of interest, merely
discount x at the interest rate and period used in the
previous calculations of TCO.
70 DAVIS LANGDON RESIDUAL LAND VALUE

EXAMPLE
What price should be paid for land to obtain a return

of 10.00% p.a. with a net annual income of R6 000 000
and the following capital outlay?
Estimated escalated building cost R 38 150 000

Professional fees R 5 725 000
Legal and plan approval fees R 45 000
Interim rates on ground during
construction period R 265 000
Loss of interest and/or bond interest
at 10.5% p.a. compounded monthly
over a 15 month construction period R 3 180 000
Total capital outlay excluding land
cost (y) R 47 365 000
x = net annual income

-y
return
= R 6 000 000 - R47 365 000

0.10
= R12 635 000
Therefore land value is R12 635 000

discounted at 10.5% p.a. over
15 months = R 11 087 204 (say) R 11 000 000
The above residual value is very sensitive to changes

of the required rate of return, otherwise known as the
capitalisation rate (CAP rate), and careful
consideration should be given to this rate taking into
account the risk profile of the proposed development.
RESIDUAL LAND VALUE 71

AFRICA IN
FIGURES
72
AREA AND POPULATION
HIV prevalence
% of pop ages
(per km²) 2006
growth 2000-
Pop. million
Pop density
Land area
(000 km²)
annual %
Average
15-49
2006
2006
2006
Angola 1 247 16.0 2.8 13 3.7
Botswana 582 1.8 0 3 *
DRC 2 345 59.0 2.8 26 3.2
Ghana 239 23.0 2.1 99 2.2
Kenya 580 35.0 2.3 62 6.7
Lesotho 30 1.8 0 59 *
Malawi 118 13.0 2.2 140 14.1
Mozambique 802 20.0 2.0 26 16.1
Namibia 824 2.0 1.3 2 19.6
Nigeria 924 145.0 2.5 159 3.9
South Africa 1 221 47.0 1.2 39 15.6
Swaziland 17 1.1 1.2 65 *
Tanzania 945 39.0 2.6 45 7.0
Uganda 241 30.0 3.4 152 6.4
Zambia 753 12.0 1.7 16 15.6
Zimbabwe 391 13.0 0.6 34 20.1
Source: World Development Report 2008

* Figures not available
AFRICA IN FIGURES 73
74
MILLION
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
ANGOLA
BOTSWANA
DRC
POPULATION 2006
GHANA
KENYA
LESOTHO
MALAWI
MOZAMBIQUE
DAVIS LANGDON AFRICA IN FIGURES

NAMIBIA
NIGERIA
SOUTH AFRICA
SWAZILAND
TANZANIA
UGANDA
ZAMBIA
ZIMBABWE
GROSS DOMESTIC PRODUCT
(AT CONSTANT 2006 PRICES)
Average
USDm USDm Per capita
annual
GNI USD
1990 2006 growth rate
2006
2000-2006
Angola 10 260 44 033 11.1 1 980
Botswana 3 766 * * 5 900
DRC 9 348 8 543 4.7 130
Ghana 5 886 12 906 5.3 520
Kenya 8 533 21 186 3.8 580
Lesotho 622 * * 1 030
Malawi 1 803 2 232 4.1 170
Mozambique 2 512 7 608 8.2 340
Namibia 2 340 6 372 4.7 3 230
Nigeria 28 472 114 686 5.9 640
South Africa 111 997 254 992 4.1 5 390
Swaziland * * * 2 430
Tanzania 4 220 12 784 6.5 350
Uganda 4 304 9 322 5.6 300
Zambia 3 288 10 907 4.9 630
Zimbabwe 8 784 5 010 -5.6 340
Source: World Development Report 2008

* Figures not available
AFRICA IN FIGURES 75
GROSS DOMESTIC PRODUCT 2006
USD million Per capita GNI USD
260 000 6396
240 000 5863
220 000
5330
200 000
4797
180 000
4264
160 000
3731
140 000
3198
120 000
2665
100 000
2132
80 000
1599
60 000
1066
40 000
20 000 533
0 0
ANGOLA
BOTSWANA
DRC
GHANA
KENYA
LESOTHO
MALAWI
MOZAMBIQUE
NAMIBIA
NIGERIA
SOUTH AFRICA
SWAZILAND
TANZANIA
UGANDA
ZAMBIA
ZIMBABWE
76 DAVIS LANGDON AFRICA IN FIGURES

DIRECTORY
OF OFFICES
77
AFRICA
REGION
CORPORATE
Business address: 3rd Floor, MPF House
32 Princess of Wales Terrace
Sunnyside Office Park
Parktown, Johannesburg
South Africa
Tel: +27 (0) 11 544 1800
Fax: +27 (0) 11 642 2289
E-mail: cindy@davislangdon.co.za
Managing director: Indresen Pillay
Non-executive
director: Hatla Ntene
Group financial
manager: Laurie Drake
Financial manager: Duncan Bowie
Research manager: Corrie Pienaar
INTERNATIONAL
South Africa
Tel: +27 (0) 11 484 2330
Fax: +27 (0) 11 484 2361
E-mail: cindy@davislangdon.co.za
Directors: Indresen Pillay
Rob Black
QUANTITY SURVEYING / COST MANAGEMENT
Bloemfontein
Business address: 4 Langeberg Ave, Bainsvlei

Bloemfontein, South Africa
Tel: +27 (0) 51 451 1548
Fax: +27 (0) 51 451 1832
E-mail: bfn@davislangdon.co.za
Director: Johan Kemp
Office manager: Louis Butler
78 DAVIS LANGDON DIRECTORY OF OFFICES

Cape Town
Business address: 45 Buitengragt Street

Cape Town, South Africa
Tel: +27 (0) 21 423 7840
Fax: +27 (0) 21 423 7841
E-mail: ctn@davislangdon.co.za
Directors: Nigel Sessions
Martin Meinesz
Associates: Billy Abelman
Tim Smith
Durban
Business address: 17 The Boulevard

Westway Office Park
Westville, Durban
South Africa
Tel: +27 (0) 31 275 4200
Fax: +27 (0) 31 265 0038
E-mail: dbn@davislangdon.co.za
Directors: Andries Schoeman
Roy Turner
Local directors: Dean Narainsamy
Rakesh Patel
George
Business address: 97 Mitchell Street

George
South Africa
Tel: +27 (0) 44 873 5070
Fax: +27 (0) 44 873 3931
E-mail: grg@davislangdon.co.za
Director: Dean Chandler
Associate: Emil Altona
DIRECTORY OF OFFICES 79
Johannesburg

South Africa
Tel: +27 (0) 11 544 1800
Fax: +27 (0) 11 642 2289
E-mail: jhb@davislangdon.co.za
Directors: Indresen Pillay
Kevin Pickup
Alastair Reid
Pusetso Makote
Auret van Lille
Craig Stuart
Associates: Thomas Fuller
Sean Forbes
Klerksdorp
Business address: 2nd Floor, 22 Boom Street

Klerksdorp
South Africa
Tel: +27 (0) 18 464 1641
Fax: +27 (0) 18 464 1644
E-mail: klk@davislangdon.co.za
Director: Bertus van Eeden
Associate: Stephanus de Vos
Pietermaritzburg
Business address: 300 Jabu Ndlovu Street

Pietermaritzburg
South Africa
Tel: +27 (0) 33 345 8371
Fax: +27 (0) 33 394 9201
E-mail: pmb@davislangdon.co.za
Director: Roy Turner
Associate: Noel Stevens

Port Elizabeth
Business address: 25A Frank Street

Newton Park, Port Elizabeth
South Africa
Tel: +27 (0) 41 365 6221
Fax: +27 (0) 41 365 6246
E-mail: pe@davislangdon.co.za
Director: Dean Chandler
Office manager: Craig Mackenzie
Port Shepstone
Business address: Suite 7, Portston Centre

Aiken Street
Port Shepstone
South Africa
Tel: +27 (0) 39 682 4114
Fax: +27 (0) 39 682 3584
E-mail: pshep@davislangdon.co.za
Office manager: Geoff Wallace
Pretoria
Business address: 1st Floor, Lakeview II

138 Middel Street
New Muckleneuk, Pretoria
South Africa
Tel: +27 (0) 12 460 5100
Fax: +27 (0) 12 460 5677
E-mail: pta@davislangdon.co.za
Directors: Pieter Rossouw
Don Reid
Gerhard Brümmer
Andries Cilliers
Tobie van Wyk
Johan Kemp
Local director: Karl Röhrs
Richards Bay
Business address: Zululand Chamber of Business

Foundation Office Park
South Central Arterial
Alton, Richards Bay
South Africa
Tel: +27 (0) 35 797 3039
Fax: +27 (0) 35 797 3977
E-mail: rbay@davislangdon.co.za
Office manager: Jeffrey Khumalo
Stellenbosch
Business address: Time Square, 9 Electron Street

Technopark, Stellenbosch
South Africa
Tel: +27 (0) 21 880 8300
Fax: +27 (0) 21 880 2984
E-mail: stb@davislangdon.co.za
Directors: Sam Kelbrick
Ian Sutherland
Francois du Toit
BOTSWANA
Davis Langdon Botswana
Business address: Plot 20620, Unit 9

Samedupe Road
Broadhurst Industrial
Gaborone
Botswana
Tel: +267 390 0711
Fax: +267 395 7550
E-mail: admin@davislangdon.co.bw
Directors: Fred Selolwane
Rob Black

MOZAMBIQUE
Davis Langdon Mozambique
Business address: Rua D. Estêvão de Ataide

No.38/48
Sommerschield 1
Maputo
Mozambique
Tel: +258 21 490 696/7
Fax: +258 21 490 699
E-mail: admin@davislangdon.co.mz
Director: Indresen Pillay
Local director: Charle Viljoen
ENGINEERING
Johannesburg
Business address: 2nd Floor, MPF House

South Africa
Tel: +27 (0) 11 484 2330
Fax: +27 (0) 11 484 2361
E-mail: eng@davislangdon.co.za
Directors: Rob Black
Ian Gildenhuys
Pusetso Makote
Craig Hall
Klerksdorp
Business address: 2nd Floor, 22 Boom Street

Klerksdorp
South Africa
Tel: +27 (0) 18 464 1641
Fax: +27 (0) 18 464 1644
E-mail: klk@davislangdon.co.za
Director: Bertus van Eeden
Associate: Stephanus de Vos
Vanderbijlpark
Business address: Delfos Boulevard

ArcelorMittal South Africa
(Engineering Building)
Vanderbijlpark
South Africa
Tel: +27 (0) 16 889 4159
Fax: +27 (0) 16 889 4159
E-mail: davis.langdon@arcelormittal.com
Directors: Johan Kemp
Tobie van Wyk
Associate: Corné Bodenstein
PROJECT MANAGEMENT
National

Westway Office Park
Westville, Durban
South Africa
Tel: +27 (0) 31 275 4200
Fax: +27 (0) 31 265 0038
E-mail: martind@davislangdon.co.za
Director: Martin Donnelly
Kwa-Zulu Natal

Westway Office Park
Westville, Durban
South Africa
Tel: +27 (0) 31 275 4200
Fax: +27 (0) 31 265 0038
E-mail: greg.pearson@davislangdon.co.za
Director: Greg Pearson

Gauteng

South Africa
Tel: +27 (0) 11 544 1800
Fax: +27 (0) 11 642 2289
E-mail: rob.fleming@davislangdon.co.za
Director: Rob Fleming
Western Cape

Cape Town
South Africa
Tel: +27 (0) 21 423 7840
Fax: +27 (0) 21 423 7841
E-mail: nigel@davislangdon.co.za
Director: Nigel Sessions
BUILDING SERVICES
Cape Town

Cape Town
South Africa
Tel: +27 (0) 21 423 7840
Fax: +27 (0) 21 423 7841
E-mail: ctn@davislangdon.co.za
Director: Willie Boylan
Durban

Westway Office Park
Westville, Durban
South Africa
Tel: +27 (0) 31 275 4200
Fax: +27 (0) 31 265 0038
E-mail: dbn@davislangdon.co.za
Director: Andries Schoeman
Johannesburg
Business address: Ground Floor, MPF House

South Africa
Tel: +27 (0) 11 544 1800
Fax: +27 (0) 11 642 2289
E-mail: jhb@davislangdon.co.za
Directors: Johan Kemp
Alastair Reid
Otto la Grange
Associate: Deon Nell
Pretoria
Business address: 1st Floor, Lakeview II

138 Middel Street
South Africa
Tel: +27 (0) 12 460 5100
Fax: +27 (0) 12 460 5677
E-mail: pta@davislangdon.co.za
Directors: Don Reid
Otto la Grange
Associate: Deon Nell
VALUATION SERVICES
Davis Langdon Valuation & Building Consultants

and
Abalaing Valuers
Alberton
Business address: 1st Floor, Allied House

36 Voortrekker Street
Alberton
South Africa
Tel: +27 (0) 11 907 2682
Fax: +27 (0) 11 907 9332
E-mail: valuers@abalaing.co.za
Directors: Jan Kloppers
Sam Ramafola

Kempton Park
Business address: 3rd Floor, ABSA Building

5 Wolff Street, Kempton Park
South Africa
Tel: +27 (0) 11 394 6203
Fax: +27 (0) 11 394 7200
E-mail: kempton@abalaing.co.za
Director: Clyde Aitken
Pretoria
Business address: Ground Floor, Lakeview II

138 Middel Street
South Africa
Tel: +27 (0) 12 346 1611
Fax: +27 (0) 86 669 8107
E-mail: pta@abalaing.co.za
Manager: Deon van Onselen
Somerset West
Business address: 3A Arun Place

Sir Lowry's Pass Rd
Somerset West
South Africa
Tel: +27 (0) 21 852 3884
Fax: +27 (0) 21 852 8752
E-mail: assist@davislangdon.co.za
Directors: Piet Swanepoel
Erwin Wallendorf
Vereeniging
Business address: Suite No 3, Medical Centre

36 Senator Marks Ave
Vereeniging
South Africa
Tel: +27 (0) 16 422 6330
Fax: +27 (0) 16 422 6339
E-mail: vereeniging@abalaing.co.za
Director: John Marokane
Manager: Jan Viljoen
SPECIFICATION CONSULTANCY
Davis Langdon Schumann Smith
Johannesburg
Business address: Ground Floor, MPF House

South Africa
Tel: +27 (0) 11 642 8307
Fax: +27 (0) 11 642 2289
E-mail: johnc@davislangdon.co.za
Director: John Chapman
Specification
Consultant: Ian Hamilton

WORLDWIDE &
ASSOCIATED OFFICES
UNITED KINGDOM
England Richard Baldwin

richard.baldwin@davislangdon.com
Scotland Neil Dickson
neil.dickson@davislangdon.com
Wales Paul Edwards
paul.edwards@davislangdon.com
EUROPE
Ireland Michael Webb

mwebb@dlpks.ie
Russia Kevin Sims
kevin.sims@davislangdon.com
Spain Francesc Monells
fmonells@edetco.com
MIDDLE EAST
Bahrain Steven Coates

steven.coates@davislangdon.com
Dubai Neil Taylor
neil.taylor@davislangdon.com
Lebanon Muhyiddin Itani
DLL.MI@cyberia.net.lb
Qatar Steven Humphrey
steven.humphrey@davislangdon.com
AUSTRALASIA
Australia Mark Beattie

mbeattie@davislangdon.com.au
New Zealand Chris Sutherland
csutherland@davislangdon.co.nz
ASIA PACIFIC
Brunei Justin Teoh

justin@dlsjubm.com.my
China Joseph Lee
lyk@dlshk.com
Hong Kong Kenneth Poon
pky@dlshk.com
India Jim Pollock
JimPollock@dls.com.sg
Indonesia Peter Robinson
dlsjkt@dls.co.id
Japan Takayoshi Sato
sato@sfc-net.co.jp
Korea Lee Mun-Su Max
mslee@dlskorea.com
Malaysia Ming Chee Loo
MCLoo@dlsjubm.com.my
Philippines Alan Hearn
aph@dls.com.ph
Singapore Eugene Seah Hsiu-Min
eugeneseah@dls.com.sg
Thailand CP Leong
leongcp@dls.co.th
Vietnam David Lockwood
dlsvietnam@hcm.vnn.vn
AFRICA REGION
South Africa Indresen Pillay

indresen@davislangdon.co.za
Botswana Fred Selolwane
fred@davislangdon.co.bw
Mozambique Charle Viljoen
charle.viljoen@davislangdon.co.mz
Nigeria John Tuffrey
john.tuffrey@tillyardnigeria.com
NORTH AMERICA
United States of
America Nicholas Butcher
nbutcher@davislangdon.us

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DAVIS LANGDON

22nd EDITION © 2009

Written and revised by

DAVIS LANGDON AFRICA

I am therefore pleased to announce, that as of early

Davis Langdon has started with a strategic vision of

Our service lines have been expanded with property

2 DAVIS LANGDON MESSAGE FROM THE MANAGING DIRECTOR

Davis Langdon has embarked on a programme of

Corporate social responsibility is an area close to our

We have made further strides in our BBBEE

The entire Davis Langdon strategy is based on

MESSAGE FROM THE MANAGING DIRECTOR 3

The above scores have been achieved by quantifying

l socio and economic development.

Notwithstanding the above achievements, Davis

The system has been developed, established and

l processes needed for the quality management

This quality management system is accredited to the

6 DAVIS LANGDON QUALITY MANAGEMENT

It is anticipated that the maintenance and constant

Research is firstly conducted to support our

Research activities nationally, regionally and

8 DAVIS LANGDON RESEARCH SUPPORT

Davis Langdon, in recognizing our social

It needs to be mentioned that the Green Building

The international sustainability group has developed

10 DAVIS LANGDON SUSTAINABILITY

QUANTITY SURVEYING / COST MANAGEMENT 11

With offices located in Johannesburg and Klerksdorp,

In the mining, minerals, metallurgical and petro-

12 DAVIS LANGDON ENGINEERING

l fire detection and evacuation systems;

l lifts, escalators, travelators;

l building management systems;

Davis Langdon Building Services provides a

l life cycle and whole life costing.

14 DAVIS LANGDON BUILDING SERVICES COST MANAGEMENT

Recognised as one of the world's leading providers of

This equips Davis Langdon Project Management with

Our strength lies in an ability to provide a dedicated

Our services can be tailored to suit the needs of the

l value and risk management;

l programming and planning;

Our project managers work together with our clients

We are committed to building and managing teams

The growth of the service in recent years has been

16 DAVIS LANGDON PROJECT MANAGEMENT

l assessment of contractors' claims;

l establishment of quantum relating to claims;

l assistance to legal teams.

Davis Langdon is in the unique position of being able

Our professional team has successfully completed an

We offer a countrywide service and are equipped to

18 DAVIS LANGDON VALUATION SERVICES

An experienced team, based in Johannesburg,

Our service has been prepared for use by employers,

We compile project specific specifications to reflect:

l national standards and regulatory standards.