THE slowing local economic landscape has yet to affect the office rental market, except in nodes which have a large oversupply of space such as Century City, property commentators say.

In Century City, landlords are offering reduced rentals to attract tenants but this is the exception rather than the norm at this stage.

“We certainly have not seen a shift out of main centres,” says Grant Abrahams, fund manager at Redefine Income Fund.

“We would expect the rental market to be negatively affected if the current market contractions continue for an extended period resulting in excess office space in the larger nodes.”

Abrahams says there has been large demand for industrial land over the past three years and there still is demand in the major industrial areas nationwide.

This trend forced industrial rentals to rise sharply, but he says rental growth will now slow and keep pace with inflation as the economy slows and construction costs begin declining.

Retail rentals are expected to continue remaining flat with possibly no real growth as a result of the slowdown in retail spending and the economic slowdown in general.

Retail figures released by Stats SA last week painted a bleak picture of trading conditions. Sales fell 4% annually in November — the seventh consecutive monthly decline. Yet trading updates from SA’s big retailers tell a story of a more robust sector. Among the winners are Shoprite, Mr Price, Massmart and New Clicks, which all experienced real growth in the six months (Massmart and New Clicks three months) to December.

According to Estienne de Klerk, executive director for Growthpoint Properties, office rental levels have peaked and demand for space is coming off record highs.

“Companies requiring larger space are delaying making this decision as a result of the economic climate. There is definitely a trend to consolidate or downscale, where this is an option,” De Klerk says.

He says vacancy levels are still low. “There is much less oversupply in the current market.

There are, however, a few small signs of some tenants being challenged in the market which could weaken property owners’ debtors’ books somewhat.” Industrial property is still the best performing sector and is expected to remain so for a time. Vacancy levels for industrial property stand at about 3%.

In terms of retail rentals, Growthpoint owns and manages a portfolio of predominantly large regional shopping centres and the market fundamentals applicable to these properties are still solid, with rental growth continuing and vacancy levels in the region of 3%.

Source: Business Day