16 Jul 2013
The Jones Lang LaSalle Johannesburg Real Estate Review Q1 2013 report revealed that a demand for prime property in areas such as Sandton, Hyde Park, Bryanston and Midrand continued as corporate tenants search for quality office space.
Prime property was also achieving asking rentals as tenants were prepared to pay a premium although, developers were reportedly holding back on speculative developments.
According to the report, the average gross rental for P grade office property increased 2.7 percent year-on-year (y/y) achieving an average of R171 per square metre in Q1 2013.
The monitored top rental achieved during this period was R215 per square metre, increasing 5 percent y/y from R205 per square metre achieved in the similar period in 2012.
Commercial property developments
Last week, Broll came out saying for the first time in years, commercial property developers are bringing speculative office developments to the Sandton CBD.
According to Fran Teagle, director of commercial broking division at Broll, this bullish sentiment is unique to Sandton Central which, as the financial hub of Africa, has a deep-rooted appeal as a prime business address.
She points out that new speculative property developments coming to market include the 20 000 square metre 15 Alice Lane, 10 000 square metre Athol Towers and 20 000 square metres at 85 Grayston.
“This speculative development shows new confidence is entering the market, certainly for Sandton, and while there are some speculative office developments underway, most developments still only get the green light from owners and funders once a major tenancy is confirmed for most of the building.”
Teagle explains that central Sandton has lots of rezoned land which means that older buildings all have the potential to be redeveloped to around double their present size.
“Should the older buildings be redeveloped to new heights of 20 or 25 floors, there’s potential for around 1.5 million square metres of available bulk in Sandton CBD, however, it’s unlikely all will be built.”
She notes that parking is still a major factor for tenants when choosing a property to rent with most demanding five parking bays to every 100 square metres of office space, and Sandton’s zoning allows for building, in some cases, up to six basement parking levels.
Asked what prime rentals are charged in the Sandton CBD, she says they average between R175 and R195 per square metre.
Sandton also offers sectional title offices and demand has led to stock shortages in the area.
“There’s also a big demand for investment stock and little available stock in Sandton, which means that new development is the only way to gain this.”
She says demand is as a result of the fact that Sandton Central is a district that really works for business – offering conferencing facilities, hotel properties, retail, restaurants and ease of travel with the Sandton Gautrain Station.
According to ANVIL Property Smith, Upper Grayston Office Park, located off Grayston Drive and in close proximity to the M1 highway’s Katherine Street off ramp, is a building aiming for a 6 star rating - the other blocks in the building like block E have already been awarded 5 ratings.
Developers of this property, The Brydens Property, say this block will be complete in September, featuring AAA grade office space with gross average rentals expected to reach R160 per square metre.
The office park, now entering Phase 4, was just recently acquired by Tower Property Fund, a company that is set to list on the Johannesburg Stock Exchange on 19 July.
Commercial property market
Broll facilitated the deal for Ernst and Young’s move to Sandton and a new head office measuring 65 000 square metres is also under construction for Sasol in Sandton and this, she points out, will see an increase in Rosebank office vacancies.
On commercial property developments in Sandton, Greg Sacks, chief executive officer of Alchemy Properties, co-owner and developer of Sasol’s new head office in Katherine Street, Sandton says the Sasol property as well as the new developments for Webber Wentzel (previously Illovo), Sanlam/Santam (Illovo, Houghton), Ernst and Young (Melrose) and Bowman Gillfillan (Sandton) have all served, on a combined basis, to underline Sandton as the address for SA's large corporate offices.
“Demand for new builds is being driven largely by the needs of tenants for better functionality and future-proofing of their buildings, as well as the competitive development environment which has kept rentals on new buildings within close range of existing buildings.”
Vacancy levels for A grade and new buildings in Sandton are low but, older office buildings and B grade or A minus are under pressure to retain tenants, he points out.
He notes that a number of tenants are currently planning new premises in Sandton as well.
“The competitive development environment and high vacancy rate in the office sector is such that we do not foresee this having a significant impact on office rental levels,” says Sacks.
Furthermore, Sacks says Alchemy's Sasol site as well as adjoining sites along Katherine Street link up with Growthpoint's land situated on the corner of Katherine and Rivonia road.
Together, these represent an extensive area with the potential to be developed into an upmarket business precinct.
Alchemy and GrowthPoint are currently in discussions regarding the potential for such a precinct to determine ways to develop it and to provide tenants with their own sense of identity and to be part of a greater precinct scheme, according to Sacks.
In an exclusive interview with Property24.com, Sacks says Sasol does not wish to disclose the cost of the building.
However, he explains that the costs will be borne equally between co-owners, Alchemy and Sasol Pension Fund and the development is being undertaken by Alchemy Property Developments and Projects (Pty) Ltd.
In essence, this means that Sasol Sandton offices will consolidate all of Sasol's office space throughout Johannesburg including Rosebank, Randburg and Bryanston.
The property measuring 67 000 square metres located at 2 Katherine Street in Sandton is scheduled for completion in the second half of 2016.
Sacks explains that the site on which the new property is being built is made up of a land assembly of five erven, each of which housed small two storey office buildings.
“Those buildings have now been demolished and the site itself is 1.5ha in extent and construction began in May.”
Asked why Sasol decided on Sandton as a location, he says the company ran an extremely stringent selection process in which it considered in excess of 25 sites in Sandton, Rosebank, Illovo, and surrounding areas.
“Sandton is considered to be the home of South Africa's corporate blue-chip companies and the appropriate area for Sasol to build its new offices.”
He points out that Alchemy was not party to Sasol’s internal decision making process but, he says for Alchemy, the total package of the Sandton area (its infrastructure, good access to highways and major arterial roads), coupled with the design of the building were Sandton’s decisive factors in this partnership.
Sacks says they are targeting a 5 Star Design and As-Built Green Star Rating and the property will have features including the use of the most technologically advanced glass available to reduce heat and glare while still allowing maximum views from the building.
He says green buildings are important for obvious environmental benefits as well as reduced energy consumption – and often less noted is the increase in occupancy comfort and a more enjoyable working environment.
“This in turn provides proven and quantifiable increases in productivity for the company and a positive attitude towards the building from its inhabitants.”
Sacks says in this regard, their green building consultants, Paul Carew and Associates, have constructed a “comfort test rig” for Alchemy in Cape Town to determine ways to maximise occupancy comfort, adding that they believe this is a world first. – Denise Mhlanga
Denise MhlangaProperty journalist at property24.com
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