A number of business nodes have seen a further increase in empty offices in recent months, indicative of a stalling economy. In fact, SA’s overall office vacancy rate has now breached the 10% level for the first time since 2004, according to Sapoa’s office vacancy survey for the second quarter of 2011.

Back in the early 2000s, the market was labouring under an oversupply of newly developed office buildings. This time around, rising vacancy rates are attributed to a general lack of demand, as cash-strapped companies put expansion plans on hold or downsize to save on monthly rental bills.

In Sandton, SA’s second-biggest office hub after downtown Johannesburg, vacancies remain stubbornly high at just under 10%. That’s doubled from around 5% three years ago.

The lacklustre demand for office space is bad news for landlords and puts pressure on the income earned by listed property funds. But it does create an opportunity for tenants to negotiate better deals on lease renewals. Some landlords are even prepared to discount rentals just to retain tenants.

Fran Teagle, broking director at Broll Property Group, says the balance of power will continue to favour tenants in lease negotiations for the foreseeable future. “Landlords are being very flexible, giving higher fit-out allowances and good terms for quality tenants.”

Sapoa’s latest office vacancy survey shows that Illovo in the northern suburbs of Johannesburg is now SA’s most expensive area for a corporate address, with asking top-end rentals at an average R210/m² . That’s more than four times the average R50/m² that office tenants are paying in Pretoria’s CBD, currently SA’s cheapest business district.