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Commercial property demand and trends

26 Jun 2013

The commercial property sector is set to improve in 2013 because of the difficulties of bringing new developments into fruition, and this will create demand for property in certain areas in the country such as Houghton, Bryanston and Rosebank, according to Paul Barrow, head of property at the Barrow Group in Johannesburg.

Erf 1973, Number 3 on 9th Street, is a development which comprises 2 500 square metres of office space over three storeys and two levels of basement parking.

Barrow says the construction sector has been through tough times with signs of improvement, however, it remains difficult to get a development off the ground due to several factors including delays in municipal provision of services, as well as difficulties in accessing development finance.

He points out that Government’s planned rollout for infrastructural spend, upgrading of roads and improvement of services will hopefully stimulate the economy, providing work for property professionals.

Office property market

Barrow says B and C grade office properties remain under pressure especially in marginal areas and this trend is expected to remain stagnant.

Tenants continue to be attracted to A grade office properties and new buildings with many foreign investors wishing to establish a presence in South Africa eyeing AAA buildings in secure locations with easy access to transport in Johannesburg.

“There’s also a demand from South African businesses that need a presence in Johannesburg and businesses in Sandton, not near the Gautrain, or located in older buildings are looking at better located offices in new buildings,” he notes.

Commercial tenants are also savvy about energy saving and now want buildings that have green features designed to reduce energy consumption.

According to Barrow, within their group, office vacancy levels are very low at 3 percent, pointing out that demand for office space in decentralised, safer and more upmarket suburbs continues.

Sought-after locations

In Johannesburg, Barrow says the upmarket suburb of Houghton is experiencing an uptake in demand for commercial property, following close on the heels of neighbouring suburb, Rosebank.

The latter’s major revitalisation has put the suburb on the map as Johannesburg’s second business hub in the north after Sandton.

As a result, Johannesburg’s young and upcoming professionals, as well as large enterprises, are being drawn to the area, according to Barrow.

Astute tenants are taking advantage of the low interest rate - and the perennially high level of office vacancies - to negotiate preferably packaged long-term leases, a move that could bring them significant benefits over the next three to five years.

According to WealthInsight, a firm which provides data and insightful analysis on the world’s High Net Worth Individuals (HNWIs) and wealth sector, Houghton is a top location for wealthy Johannesburg home buyers ranking No 4 with 18 HNWIs in 2012, Sandhurst (38), Bryanston (34) and Hyde Park (30).

Click here to read the article.

“Due to improved public transport in Rosebank and Sandton, these suburbs will continue to gain popularity and there will be a stronger demand for office space.”

The demand in Bryanston, where lower-rise offices are the norm, is to be located in a hub that has easy access to the surrounding residential area.

“It’s about working in close proximity to where you live,” points out Barrow.

He says in response to the changing landscape and demand for commercial property in Houghton,  Barrow Properties are developing their commercial property building with frontage on Oxford Road.

Erf 1973, Number 3 on 9th Street, is a development which comprises 2 500 square metres of office space over three storeys and two levels of basement parking.

The basement levels accommodate 92 parking bays while the open parking area accommodates 17 parking bays and the office building is available for sale or lease to a single buyer or tenant looking for premises within the heart of this growing business precinct.

Barrow Properties points out that the property is ideally located within walking distance of the Rosebank Gautrain Station, is easily accessible from the M1 highway and is equidistant between the Johannesburg CBD and the economic hub of Sandton, as well as numerous surrounding educational, recreational and medical facilities.

Commercial property trends

Barrow explains that what many developers ignore is catering for smaller office space in A grade sector buildings.

He says there is growing demand among well-established smaller businesses for this type of office space.

“There’s a demand and an appeal among companies to entirely lease an office building for themselves only, to give them a presence that is not diluted by sharing with other companies.”

Tenants continue to be attracted to A grade office properties and new buildings with many foreign investors wishing to establish a presence in South Africa eyeing AAA buildings in secure locations with easy access to transport in Johannesburg.

Barrow notes that some older office buildings are currently being divided – they were designed for a single tenant and have lost that tenant.

They now need to renovate and divide, as it’s difficult to sell an entire office block that’s empty and not income-producing.

Dividing it reduces risk and increases the likelihood of it being rented out sooner, he explains.

Property rentals

Barrow says now more than ever, the landlord/tenant relationship is more important and landlords are listening more to tenant requirements.

Due to moving costs and a shortage of good rental deals, tenants are not likely to move around much.

According to Barrow, one of the trends predicted for 2013 has been the dropping of rental deposits.

“This is only sustainable for large institutions because they rely on critical mass and not really for other players.”

He says dropping deposits will remove the incentive for tenants to leave buildings in a good condition and with paid-up utility bills.

Meanwhile, Org Geldenhuys, managing director of Abacus Divisions says astute tenants are taking advantage of the low interest rate - and the perennially high level of office vacancies - to negotiate preferably packaged long-term leases, a move that could bring them significant benefits over the next three to five years.

“Tenants are looking at favourable rental options, including small, or no annual increases for the time period of their lease, with many opting for leases as long as five years - but, for that, they are pushing for really material locked-in benefits,” he says.

Geldenhuys says they are not only getting leases at good prices, but they are squeezing landlords for a host of additional benefits, such as better parking, more space, better amenities, rebates on water and lights and tailor-made office improvements, or refurbishments.

“Many landlords are in a corner with the depressed state of the commercial property market and are more likely to get their arms twisted now than ever before - just to secure long-term tenants.”

According to Geldenhuys, this trend could see a reduction in office vacancy rates in the foreseeable future, and those landlords who can ride out the storm for the next few years - by offering tenants as many thrills and spills as possible - are likely to be the ones that will survive, and perhaps prosper.- Denise Mhlanga

About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at property24.com

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