Office vacancies are at record lows while the development and refurbishment of hotels are at record highs in Cape Town.

According to Dave Russell, director of Baker Street Properties, the most recent SAPOA office vacancy figures show that office vacancies have been declining across the board for the past two and a half years, especially in all the established office nodes throughout Cape Town.

"Claremont, Rondebosch and Newlands in Cape Town's southern suburbs have office vacancies of just over 1%, meaning those areas are full," he says. "In Cape Town's CBD, A-grade office vacancies are down to 3%, which is critical too."

Testimony to the shortage of A-grade office vacancies in Cape Town's CBD is the fact that Old Mutual Investment Group Property Investments' (OMIGPI) office tower Triangle House has been fully let in record time. Triangle House forms part of OMIGPI's Triangle unitised funds, which are geared to providing income for institutional retirement funds.

"It's at a level in Cape Town whereby there are no options available to accommodate growth of tenants wanting to move into a particular node, especially tenants who need premises of approximately 1 000 m2," says Russell.

Russell explains that on the back of demand there has been an increase in rentals. "A-grade office rentals in Cape Town's southern suburbs range from R100 to R130 per m2, while in the CBD A-grade rentals range between R95 to R125 per m2," he says. According to an OMIGPI study, premium space in the CBD fetches rentals of up to R140 per m2, with older A-grade offices fetching up to R115 per m2.

The study further says that the demand for office space in the greater Cape Town metro area can be expected to grow in line with overall macro-economic growth in South Africa.

"The study indicates demand for office space in greater Cape Town can be expected to grow at an annual 107 000 m² through to 2015," says Brent Wiltshire, business development executive for OMIGPI.

"If the Cape Town CBD maintains its 40% share of the metropolitan office market, demand for office space in the CBD will be about 43 000 m² a year."

Wiltshire says the study found there are plans for an additional 60 000 m² of office space in the metro area, 24 000 m² of this to be located in the CBD.

"It also notes that after two decades of decline, with decentralisation and residential growth creating strong nodes away from the CBD, work done on improving the inner city has brought a change in fortunes," he says.

"It also appears that the CBD has turned a corner with total available office space increasing, total occupied office square meterage increasing and vacancy levels dropping to 6,5% for the period 2002 to 2007."

Growthpoint Properties Limited has also seen a dramatic upswing in leasing activity in the Western Cape region, with deals concluded increasing by 45% over 2006.

"Overall, the Cape Town leasing statistics for retail, office and industrial space show an increase from a deal value of R256 million in 2006 to R370 million in 2007," explains David Stoll, regional manager of Growthpoint Properties Limited in Cape Town. An analysis of the leasing figures for 2007 shows that office leases made up the largest slice of the leasing pie, totaling a value of R154 million or 42% of leasing deals. "The indicators suggest that office leases particularly are achieving strong rentals," he says.

Russell stresses that the increase in office rentals has not yet peaked and will continue to increase until new buildings come on stream. He points out that there is a new office development, The Boulevard, which will provide 36 000 m2 of top-quality office space on periphery of town as well as some developments in the Foreshore.

He also explains that although retail is active in Cape Town, retail rentals have peaked because "retail feels the effects of the National Credit Act".

In addition to the shortage of office vacancies in Cape Town's CBD, the CBD is also becoming a hot spot for hoteliers.

Findings were presented at the eighth annual general meeting of the Cape Town Partnership that showed that approximately 50% of the tourist beds in the greater Cape Town region are located in the CBD.

And plans are afoot for many new hotel developments like the Taj Palace Hotel and 15 on Orange for R500 million respectively.

The variable in the picture that could still noticeably impact office vacancies and hotel development is lack of power, the effect of which still remains to be seen. The upside though is that Cape Town's CBD is set to receive R30 billion in private and public investment over the next five years, making the overall picture rather rosy. By Kara Michaels

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