SA office vacancies now stable

09 May 2012

The national office vacancy rate in South Africa has stabilised following four quarters of steady increase, according to the Sapoa/IPD Office Vacancy Survey.

The national office vacancy rate in South Africa has stabilised following four quarters of steady increase according to the Sapoa/IPD Office Vacancy Survey. The first quarter of 2012 office report reveals that the A grade vacancy rate is currently 8.7 percent, while P grade offices sit favorably at 1.7 percent.

The first quarter of 2012 office report reveals that the A grade vacancy rate is currently 8.7 percent, while P grade offices sit favorably at 1.7 percent.

The amount of new committed development has increased steadily over the past three quarters and is currently just over 700 000 square metres, while the ratio of un-let space has improved by 5 percentage points compared to a year ago, notes the report.

IPD report writer Sean Godoy explains that in Q1 2012, the national office vacancy rate improved slightly on aggregate for the first time since Q2 2010, albeit by 2 basis points to 10.35 percent.

“While this is a very marginal decrease it may signal that vacancy rates are beginning to stabilise somewhat, following four quarters of steady increases.”

Godoy says the latest vacancy rate represents a 130 basis points increase over two years ago and a 45 basis points increase over one year.

He says prime office space continues to perform well with most prime nodes showing improvement this quarter.

Overall prime vacancies continue to outperform those of lower grade stock, with P grade showing significant strength following a 33 basis points improvement to 1.67 percent in the latest quarter.

A grade registered a marginal increase of 28 basis points to 8.73 percent.

C grade space recorded the largest improvement this quarter, with the national vacancy rate falling by 176 basis points to 16.41 percent.

He says while this is due in part to the trend of office to residential conversions in CBDs and upgrading of space in various nodes, it also indicates that there is some demand for CBD C grade space, particularly in Johannesburg and Pretoria.

The overall CBD vacancy rate is currently 15.2 percent, up marginally by 16 basis points from Q4 2011.

Vacancy rates in Johannesburg and Port Elizabeth improved in the fourth quarter of 2011 while in Pretoria, Durban and Cape Town vacancy rates increased.

Godoy says given the current economic outlook of low growth for 2012 there is unlikely to be any significant improvement in vacancies in the year ahead, with possible sideways movement or marginal improvement being the best-case scenarios.

The report notes that in Johannesburg & Environs, Illovo’s prime office space commands the highest rentals of R200 per square metre while A office grade in this node have rentals ranging between R115 and R125 per square metre.

In the previous Sapoa/IPD report, Illovo was named the priciest office location in the country.

The Nedbank/BOE building in the clock tower precinct of the V & A Waterfront has again bucked the trend for office vacancies in Cape Town, by showing a decline in vacancies for the first quarter of 2012, according to Baker Street Properties.

Read the article here.

Prime office spaces in Melrose and Waverly have rentals of R195 per square metre while A grade offices are priced at R100 per square metre.

Midrand prime offices cost R85 and A grade offices between R50 and R100 per square metre, Rosebank prime (R181.50 per square metre) A grade (between R100 and R195 per square metre), Sandton prime (between R133.50 and R190 per square metre), A grade (between R100 and R195), Woodmead A grade offices are priced between R85 and R130 and Greenstone/Edenvale and Modderfontein A grade offices cost between R105 and R119 per square metre.

In Port Elizabeth, prime office space in Greenacres costs R125 and A grade R80 per square metre, Newton Park prime costs between R120 and R127 per square metre, A grade R70 and A grade in Walmer and Fairview costs between R90 and R110 per square metre.

In Pretoria Gauteng, locations such as Brooklyn, Niew Muckleneuk, Groenkloof and Waterkloof command rentals of between R120 and R136 per square metre for A grade offices, Centurion (between R100 and R125 per square metre), Hatfield and Hillcrest A grade offices (between R120 and R134 per square metre) and A grade offices in Lynwood, Menlo Park and Hazelwood are priced between R120 and R149 per square metre.

According to the report, in Durban, prime office space in Hillcrest is priced between R75 and R177 per square metre, A grade in Ballito (between R70 and R143 per square metre) and Berea A grade costs between R90 and R115 per square metre.

In Cape Town, A grade offices at the Waterfront are priced between R100 and R170 per square metre, Century City A grade (between R85 and R130 per square metre) and Claremont A grade costs between R90 and R150 per square metre.

Click here for cheap office space in South Africa.

Baker Street Properties notes an increase in office vacancies in some nodes in Cape Town in the first quarter of 2012.

Dave Russell, director of Baker Street Properties, says with few new buildings coming on stream in the short term there is every possibility that vacancies may be reaching their peak.

Russell explains that significant change has been recorded in the Cape Town CBD, where combined vacancies are now reaching 12 percent and are at levels last seen in 2003.

JHI Properties is marketing fully air-conditioned office space at 2 Long Street, which is conveniently situated on the Integrated Rapid Transit bus route in Cape Town CBD.

Of greater concern is that in Claremont combined vacancies are heading towards 20 percent, up from 13.7 percent in the previous quarter. 

He says the Rondebosch/Newlands node has experienced a substantial increase from 7.3 percent last quarter to 13 percent currently, while Bellville and Century City have shown more resilience with vacancy levels of 8.6 percent and 8.4 percent respectively.

The ever popular V&A Waterfront is one of the exceptions to the trend, as it is down to a combined vacancy of only 2.7 percent.

Russell points out that office vacancies in the Pinelands node remain low at 3.6 percent.

“Until we see a significant decrease in vacancies we will continue to experience flat rentals, which are well off their peak in 2008 when the global economic recession set in.”

“Good economic growth and a return of business confidence are required before any change will be seen,” he says.

It is difficult to predict when this will happen, so we could see the current trend continuing for at least the next 12 months.

“Current market conditions are good for tenants who are encouraged to take advantage of this soft market and the concessions currently offered by landlords,” says Russell.

In Pretoria, Abacus Divisions property management points out that the multi-billion Rand Highveld Technopark in Centurion and its surrounds is undergoing substantial changes, which are expected to make the office park more alluring to businesses looking for value for money rental premises.

Org Geldenhuys, managing director of Abacus Divisions, says one of the main improvements would be a vastly improved access to the office park, something that was "causing concerns in the past'' - and arguably affecting tenant perception and the level of investment and rentals.

The Highveld Technopark, which focuses on high technological research and development, is situated just south of the Danie Joubert Highway and houses, among others, Telkom's National Operations Centre and Nokia Siemens Networks.

The Gautrain feeder bus route boasting seven stops in the office park and a newly constructed Witch-Hazel off ramp from the N1, providing access to the park are expected to boost the popularity of the office park as a business rental destination, he says.

The office park is now almost 90 percent completed and includes mostly A grade office developments and very stylish office buildings.

There are also small components of neat industrial and warehousing developed within the office park.

Johannesburg Stock Exchange listed property company, Vunani Property Investment Fund Limited purchased the Foretrust property from Redefine International at a price of R249.5 million with a net yield of 11.1 percent.

According to the Sapoa/IPD report, A grade offices in Highveld Technopark & extensions are priced between R100 and R148 per square metre while B grade offices cost between R60 and R75 per square metre.

Meanwhile, JHI Properties report that the commercial property market in the Western Cape is reflecting increased positive sentiment.

The agency concluded 255 leases in the region for 98 000 square metres of office, retail and industrial space.

They say these leases represent a contract value in total of almost R360 million, including sizeable office space in Cape Town CBD for tenants comprising provincial government, banks and professional services.

Selwyn Sharon, JHI Properties leasing, sales and investment broker, says a positive for the city is the major expansion of the highly successful Cape Town International Convention Centre (CTICC) as well as a 10 000 square metre retail node, hotel and new flagship hospital - further boosting Cape Town’s reputation as a global business destination.

He says as the worldwide trend is towards urbanisation and densification of cities, the obvious choice for new investment and construction in Cape Town is the Foreshore, which in addition to the CBD offers easy access to the N1, N2, railway station and new Integrated Rapid Transit network, with the latter being within walking distance of most Foreshore buildings.

“Cape Town CBD has a land scarcity and as a result shrewd investors have begun purchasing large office buildings on the Foreshore.”

Some of these property investors intend extensively upgrading the buildings while still being very competitive with newer developments at Century City or in the heart of the CBD.

On the Foreshore the only additions of significance over the past decade have been the CTICC, the prime grade Convention Towers office block and a number of hotels.

As the world economy stagnated and even contracted since the recession in 2007, developers did not embark on new capital intensive projects in the city.

“With office vacancies in the city in the region of 86 000 square metres, landlords are able to reverse this trend through realistic expectations on rental rates and investing in upgrades to unlock value in their portfolios.”

According to Sharon, new developments are taking place in the Cape Town CBD including a new building under construction for a large legal practice at 22 Bree Street and the largest office development in Cape Town – Portside, which is a joint venture between FNB and Old Mutual.

Sharon reveals that currently, opportunities exist to acquire well situated B grade buildings in the Cape Town CBD and refurbish to A grade quality to meet demand for such space.

According to Sharon, new developments are taking place in the Cape Town CBD including a new building under construction for a large legal practice at 22 Bree Street  and the largest office development in Cape Town – Portside, which is a joint venture between FNB and Old Mutual.

Click here to read about the Portside office development.

“Over the past year developers with vision, taking advantage of the current low interest rates, have invested over R500 million in acquiring properties on the Foreshore,” says Sharon.

These include Ingenuity Properties, which has consolidated an entire city block of office buildings by acquiring Atlantic Centre.

The centre is in the process of undergoing a complete refurbishment while the property on 31 Hertzog Boulevard has recently also been extensively upgraded.

Johannesburg Stock Exchange listed property loan stock, Vunani Properties, purchased the Foretrust Building and planning has begun on a possible upgrade.

Click here for more information about this deal.

Sharon says the entire Culemborg motor city area – located close to the harbour and adjoining properties will begin seeing major planning and construction of new mixed-use buildings of up to a total of 240 000 square metres over the next five to 10 years.

Selwyn Sharon of JHI Properties is negotiating with key tenants on behalf of the landlord of Atlantic Centre on Cape Town’s Foreshore. This property is undergoing a complete refurbishment.

Other projects underway in Cape Town include Newspaper House in the central city area, a building which is undergoing a complete refurbishment with the new owners, Ingenuity Properties, creating more offices and retail areas.

The property on the corner of Castle and Burg Street is being rebuilt by Cape Empowerment Trust, its new owners, and the project is scheduled for completion by the end of 2012.

Renewed activity includes the Green Point area, where the old Satbel building is being completely refurbished with additional parking and extra lettable space set to become the new trendsetter on vibrant Somerset Road.

Also in Green Point, 70 Prestwich Street is being given a complete upgrade with large floors now able to accommodate smaller tenants with A grade offices and top finishes.

On the old Phoenix hotel site on the corner of Strand and Hudson Streets the Mirage project has commenced, thereby providing top end residential apartments in the De Waterkant area as well as a small retail component, says Sharon.

Sharon adds that on the Gardens side of the city, the Wembley Square area has a newly completed addition comprising a sizeable office building while two commercial properties in nearby Roeland Street are currently being refurbished. – Denise Mhlanga

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