24 Jan 2012
The Durban CBD has emerged as the location offering cheap office rental properties with gross asking rentals of R45 per square metre for C grade.
This is according to the South African Property Owners Association (Sapoa) and Investment Property Databank (IPD) Office Vacancy Survey Q4 2011.
The survey revealed that Illovo in Johannesburg is the priciest office location in the country with gross asking rentals of R200 per square metre followed by Melrose/Waverley at R195 per square metre, Rosebank at R181.50 and Sandton & environs at R165 per square metre.
Craig Davis from Growthpoint Properties, the largest Johannesburg Stock Exchange listed property company by market capitalisation says the cheapest offices in the city are the B and C grade in the CBD with gross rentals of between R35 and R55 per square metre.
“These buildings have not been maintained or upgraded sufficiently to achieve an A grade status.”
Discounted rentals coupled with their location within the CBD and the access to public transport still make these buildings attractive to financial institutions, call centres and government departments, he says.
Davis says rentals will remain under pressure in Durban due to an increase in vacancies and oversupply of office developments coming onto the market in specific nodes.
The B and C grade office buildings will continue to be most vulnerable to vacancies and upgrading of these buildings shall remain a priority, he notes.
For tenants who cannot afford to pay rentals in the priciest locations of Illovo and the likes of Sandton, the Johannesburg CBD and Braamfontein are areas to check out.
Ndibu Motaung, head of research at Jones Lang LaSalle says these locations charge lower rentals due to the conditions of the buildings, age of buildings, perceived security risk and lack of parking with lots to choose from.
Jones Lang LaSalle is of the view that the Johannesburg CBD still has a number of good buildings that large corporates occupy and find attractive for large back-office tenants seeking easy accessibility and costs savings.
“Secondary grade rentals will remain under pressure as vacancies will still be above 10 percent in the secondary nodes and lower grade buildings,” she says.
There is limited speculative development as more companies are rather consolidating and are taking advantage of efficient space use.
Landlords are also providing more incentives such as additional tenant installation and rent free periods to lure tenants and reduce their vacancies, points out Motaung.
In Port Elizabeth, the cheapest offices are located in the North End area close to the Law Courts and these start from R20 per square metre while in the CBD, gross office rentals range from R30 per square metre.
This is according to Arnie Katz, director of Broll Property Group who says these offices are less appealing due to security risk of area and mostly rented by new one man enterprises or Governments departments.
Katz explains that Lynx SA Property Investments a development company is currently busy with the construction of new office space, The Acres on Norvic Drive in Greenacres.
The site is directly opposite Greenacres and The Atrium Regional Mall and close to the city’s main arterials and within 8km from Port Elizabeth airport.
The development concept will therefore be that of a multi-tenanted office and retail park with the office space consisting of two triple storey buildings on the eastern side of the site with separate access control and 24-hour security.
The retail centre will be located on the western side of the site.
The company is in the process of constructing the first of the two office buildings due for completion by the end of the year.
The building will mainly be occupied by SSI (a DHV company), an international consulting engineering concern.
Construction of the retail centre, with Spar as anchor tenant is scheduled for completion and opening of the centre is planned for May and June 2012.
Rentals for offices are set at R125 per square metre, R450 for covered parking bay, R285 open parking bay.
The rental annual escalation is 8.5 percent with a minimum of five years for lease periods.
Jan Oelofse, leasing and sales broker for JHI Properties explains that the Pretoria CBD office component has been and still is underpinned by Government buildings and tenancies although this is changing.
Oelofse says the main reasons for this include:
- poor public transport systems which encouraged private transport, but now taxis have stepped in to provide public transport
- road congestion as a result of private vehicle usage
- insufficient parking facilities due to old Town Planning conditions which restricted the provision of adequate parking in developments
- ageing buildings designed for office usage 20 to 30 years ago are inefficient when compared to modern designs
- buildings are costly to maintain and facilities incompatible with modern technology
- social problems which are earnestly being addressed by the authorities
“Office rentals in the CBD have been distorted by rental agreements entered into by Government over the past 5 to 6 years.”
Current asking rentals for office space vary between R45 per square metre for C grade to R65 per square metre for B grade with installation cost contributions by landlords under certain conditions.
In the absence of new or competitive developments to satisfy the demand for space, Government and the private sector for that matter are compelled to accept the rentals offered or to move to de-concentration nodes.
It is where they can find premises at acceptable rentals, in modern, economically designed buildings, with sufficient parking, he says.
He says Arcadia caters mainly for fringe CBD offices and embassies with most developments comprising residential conversions.
These command gross asking rentals of R75 and R77.50 per square metre respectively.
Tony Galetti, director at Galetti Commercial and Industrial says the cheapest office properties are located between Salt River/Maitland and up to Bellville along Voortrekker Road.
In these areas, one will find older mixed use buildings with shops on the ground floor, and offices and sometimes residential apartments above.
“One can easily rent offices priced between R30 and R40 per square metre in some of the older buildings.”
Galetti says that they are fairly positive about the commercial and industrial property sector adding there might be pressure on sales as too many landlords still charge pre-2008 prices when there has been a significant downward movement in values across the board. – Denise Mhlanga
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