With the economy growing (albeit slowly), business confidence at last back in positive territory and employment on the rise, the prospects are improving for SA’s office market.
Indeed, the latest available statistics from Rode & Associates show that rental increases for A-grade space were already beginning to manifest in most CBDs around the country (with Durban as the exception), and in several decentralised nodes during the fourth quarter of 2011.
However, this sector has a long way to go before it can really be said to be in recovery.
In Johannesburg, for example, the Jones Lang La Salle market overview for the fourth quarter of 2011 notes that the average achieved rental for prime (P) buildings in prime nodes increased by an average of only 0,5%, with the highest performer being Rosebank, at 1,7%.
The report says office take-up has improved in certain prime areas (mainly Sandton, Hyde Park and Rosebank), which has resulted in reduced vacancies in these areas – and slightly higher rentals (see graph).
This demand is, however, mainly being driven by companies seeking the convenience of transport nodes, particularly within the Gautrain reach, as well as consolidation for greater operational efficiencies. “However, the overall demand for offices is somewhat stagnant as many occupiers are merely moving between nodes and leaving secondary nodes with higher vacancies.”
Thus, while overall Johannesburg vacancies dropped in the fourth quarter from 10,4% to 10,3%, they actually increased on an annual basis from 9,9% in 2010 to 10,9% 2011.
The Johanneburg CBD and Braamfontein recorded the highest vacancy rate (17,4%) for the fourth quarter, while vacancies in decentralised secondary nodes increased from 9,3% to 9,7%.
The report notes that gross rentals for Grade-A stock increased by 1,7%, especially in areas such as Woodmead and Rivonia, while average rentals for Grade B offices moderated by 2,4%, mainly because landlords resorted to lowering rentals in order to mitigate increasing vacancies.
What is more, the development “pipeline” (planned office projects) in the fourth quarter, with completions expected to add some 159 000sqm of new office space to the Johannesburg total this year – mostly in Sandton and Bryanston (see table).
Meanwhile, in Pretoria, the current picture is quite similar, with the CBD losing private tenants and even some government departments to decentralised nodes that are able to offer better quality space.
Jan Oelofse, leasing and sales broker for JHI Properties, says that although low-rental space is available in the CBD (around R65/sqm for B-grade space and R45/sqm for C-Grade), insufficient parking facilities in the city centre and ageing buildings that are costly to maintain and incompatible with modern technology are big deterrents.
“Most companies would rather move to decentralised nodes where they can find premises at acceptable rentals in modern, economically designed buildings with sufficient parking.”
Particularly popular at the moment are Hatfield, which is close to the Pretoria Gautrain terminus and currently has a vacancy rate of around 6%, and Brooklyn, which has a total of approximately 162 000sqm of P and A-grade office space developed around a shopping mall. The demand for this area is reflected in the low vacancy rate of 2 to 3%.
However, says Aida Commercial broker Ewa Schütt, even in these areas rentals are expected to move sideways for at least the rest of this year. “Enquiries for space have actually been lower this year than last, and we find that many companies here are still rebuilding after the recession rather than expanding. In addition, those who are taking up new space are reluctant to sign long leases, even though they might gain by doing so now at lower rentals and escalations.”
Her predictions for the CBD are, however, a little brighter. “Rentals for A-grade space are rising here because a shortage of space is being created. It is government policy to move back to the CBD and on top of that several buildings have been converted to residential use.”
Source: Property Junction magazine
