OFFICE vacancies are rising in SA’s cities as the economy struggles to start humming again, and a recovery is not expected soon.

While most of the increases in vacancy rates are marginal, they confirm a trend that should be of concern to landlords and developers. According to South African Property Owners Association-IPD (Investment Property Databank) research for the third quarter, office vacancies increased by 20 basis points from the second quarter, reaching a high of 10,2% over the past two years.

“The trend over the past two years indicates the rate of increase has been relatively modest, although the latest increase suggests office vacancies could remain under pressure and there are no clear signs — economic or otherwise — that this will taper off in the short term,” IPD SA head of research Jess Cleland said yesterday. High office space vacancies make it easier for tenants to negotiate better rentals.

Stanlib’s head of property funds, Keillen Ndlovu, said the latest figures effectively meant tenants were moving as they shopped for reasonable rentals. “Vacancies are a cost because landlords have to pay rates and taxes even if the space is empty and is not earning rental income,” Mr Ndlovu said yesterday.

“On top of that, landlords will still need to hire security personnel to look after the buildings, maintain gardens and service interest payments (if the property is funded with debt). There is only one solution — we need the economy to pick up.”

The South African Property Owners Association-IPD data paint a mixed picture of office vacancies across the country in the third quarter.

Durban’s overall vacancy rate was the highest, at 16,2%. Johannesburg had vacancies of 10,9%, followed by Cape Town (8,8%), Port Elizabeth (8,6%) and Pretoria (6,7%).

Baker Street Properties director Dave Russell said the figures confirmed the trend of rising office vacancies in Cape Town. While most of the increases were marginal, they were “a confirmation of a continuing trend that should be of concern to landlords”, Mr Russell said yesterday.

“In the Cape Town central business district, the combined vacancy of premier, A- and B-grade offices is now at 10,5%. At the same time a year ago the vacancy was 9,7%.

“In the southern suburbs we now have a combined vacancy of 13,7% in Claremont and 7,3% in the RondeboschNewlands node.”

But the figures showed that prime space was performing substantially better than lower-grade stock.

For A-grade properties — those that are not older than 15 years — the vacancy rate peaked in the first quarter of this year at 8,4% and declined to 8% in the third quarter.

The decline in take-up appears to have affected Bgrade offices most: generally older buildings with finishes close to modern standards.

C-grade buildings — with older-style finishes, services and building systems — have seen both vacancies and total stock decline, largely owing to refurbishing strategies undertaken by landlords in pursuit of the A-grade market.

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Source: Business Day