Crisis in property market

Posted On Thursday, 09 August 2001 03:01 Published by
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Johannesburg - The uncontrolled explosion in especially office development in South Africa is leading to an oversupply of office space which is already threatening to reach crisis

Johannesburg - The uncontrolled explosion in especially office development in South Africa is leading to an oversupply of office space which is already threatening to reach crisis proportions in the property industry.
Although the low interest rates are the main reason for the great increase in the number of developments, the lack of control by local authorities over the granting of development rights is the main culprit in the chaotic state of affairs, says Banus van der Walt, MD of Gensec Property Services, which includes the largest property portfolio in the country, Sanlam's, in its management.
He says even in the most popular suburbs, there are far more empty offices than indicated in any official survey of empty space. This puts pressure on rentals, which have fallen by more than 30% in real terms over the past year.
Even in Sandton, now considered South Africa's financial capital, Van der Walt says the empty available space is closer to 20% than the 11% stated in the Property Owners' Association's latest survey. Also in Rosebank and Parktown, the vacancy levels are high.
If the corporate head offices in these areas, which are leased on long term, are not taken into account because they aren't really available in the market, this means 30% to 40% of the marketable space in these select areas is nowadays having problems finding tenants.
Van der Walt says the low interest rates now make it possible for developers using borrowed money to put up buildings for rentals that are considerably lower than tenants are now paying in existing buildings. New office space is even being leased for only R55 per sq m, compared with the R75 per sq m at which contracts were still being signed just a year or two ago.
'So it makes sense for a tenant to move to a brand new building at a lower rental, which means there is space elsewhere in the market for which no tenants are available.'
He points out there are buildings in Sandton which have been empty for two years, while the vacant space in other select sites for which there was a waiting list, is now running at 30% to 40%. Landlords will now take in tenants at R45 a sq m and less in offices which earned far higher rentals a year or two ago.
Van der Walt says you can't really blame developers who are exploiting the current low interest scenario to make money, but he blames provincial and local authorities who have lost all control over the granting of development rights.
He has long supported the idea that development especially in suburban areas should be under stricter control, because there has long been an oversupply of space in certain areas. This has been the situation overseas for a long time.
'By allowing uncontrolled development, capital worth billions is wasted on empty buildings which could be profitably utilised elsewhere in the economy to create jobs and to fund economic development.'
A large property owner such as Sanlam had to write off more than R1 billion just in Johannesburg and Pretoria over the past eight years as a result of buildings which could no longer find tenants.
He says conditions make it impossible for institutional investors to invest in fixed property, and he doesn't expect these investors (with isolated exceptions) to return to the market very soon.

Source: David van Rooyen

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