Sandton CBD leads A-Grade offices

04 Apr 2012

The South African A-Grade office market is reportedly staging a recovery with the Sandton CBD leading the way.

South African A- Grade office market is reportedly staging a recovery with the Sandton CBD leading the way. According to the Rode Report Q1 2012, the Sandton CBD in Johannesburg showed rental growth of 16 percent in Q4 2011.

According to the Rode Report Q1 2012, the Sandton CBD in Johannesburg showed rental growth of 16 percent in Q4 2011.

The report reveals declining vacancy rates on the back of improving demand for A-grade office space in the Sandton CBD.

In other top office nodes, the rental performance was not as impressive and vacancy rates have not declined while nominal rental growth below building-cost inflation (+14 percent) was the general observation.

Writing in the report, property economist Erwin Rode says for the time being, no improvement in the demand for industrial space is discernible.

This explains the pedestrian performance of industrial rentals, he says.

Pretoria (+8 percent) showed the best yearly growth while in other areas, nominal rental growth ranged between 2 percent and 3 percent for the Central Witwatersrand, the Cape Peninsula and Durban.

In Port Elizabeth nominal rentals were 1 percent lower when compared to a year earlier, says Rode.

At the same time, signs of a possible improvement in investment demand for industrial and office properties became visible in the fourth quarter of 2011.

This as capitalisation rates on these property types strengthened (decreased) marginally.

Rode cautions that one should not read too much into it considering that office and industrial vacancy rates are still refusing to drop, while rentals are finding it difficult to beat inflation.

This, naturally, does not augur well for capital-growth prospects, he says.

On the residential rental front, while townhouses showed no growth compared to a year ago, rentals on flats and houses grew by 4 percent.

On the residential rental front, while townhouses showed no growth compared to a year ago, rentals on flats and houses grew by 4 percent.

“As if dealing with mediocre growth in rentals was not enough, landlords who do not meter electricity separately will soon face another severe hike in operating costs in the form of seriously higher power costs – this on top of ever-rising assessment rates.”

Landlords who still have to service mortgage debt can for now breathe a sigh of relief in light of the Reserve Bank’s decision to keep interest rates steady for the time being.

The housing market continues to be stuck in a rut, this in spite of a year of record low interest rates.

Rode says it seems that neither households nor mortgage providers are taking the bait of low borrowing costs.

He explains that banks themselves seem to be constrained by the still frustratingly high ratios of debt to disposable income.

A further factor that has entered the equation quite recently is the explosive growth in unsecured loans.

These factors form an important brake on granting mortgage bonds and one can add to this concoction the expected sharp increase in utility charges, expected more modest salary increases this year and the fact that house prices are still very high in real terms, he adds.

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