Low demand for office space sees sector trailing retail property

Posted On Tuesday, 05 November 2013 15:43 Published by
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A lack of new business growth is keeping the office property market in the doldrums, according to a report released on Monday by global real estate services firm Jones Lang LaSalle.

Marc WainerThis is in contrast to an improving retail sector which is seeing upgrades being made to shopping malls and new mall projects being started. Demand for industrial space is also rising, said the firm.

The findings were published in the On Point Johannesburg Real Estate Overview for the third quarter of 2013. They suggest that real gross domestic product growth and general business activity were weak in South Africa.

"Nodal competition is resulting in the absorption of office space in selected few nodes that have quality buildings and amenities, while secondary areas are dragging the performance of the total sector resulting in higher vacancies," the report read.

Marc Wainer, CEO of Redefine Properties, the JSE’s second-largest real estate company, said at the release of the group’s financial results last week that the office segment of the property market was experiencing "musical chairs".

"We have musical chairs. Companies just swap offices; you don’t see massive demand and the economy is not doing much to change this. There are exceptions of course like Webber Wentzel’s new headquarters which we at Redefine are developing, but businesses are struggling in a tough economy," he said.

The On Point report said a delicate economic climate continued to influence cautiousness in the overall office market.

A few select prime areas were attracting tenants from other decentralised areas. Consolidation, occupation costs and corporate rebranding were the main drivers for deals in the office market.

Office supply as recorded by the South African Property Owners Association increased in the third quarter to 9.2-million square metres from 8.9-million square metres, mostly because of adjustments in the stock pile, not an increase in completions.

During the quarter, completed projects fell to 14,600m², compared with the second quarter’s office completions of just more than 80,000m². The On Point report highlighted the completion of the 7,000m² Culross on Main office building in Bryanston and the 7,600m² Vdara building in the greater Sandton area.

But office vacancies would ease soon, said Vunani Property Investment Fund CEO Rob Kane.

"I think we will see an uptake. We thought it would happen a bit sooner but it is coming. The strength of the property

sector is not completely correlated to GDP and I think corporate South Africa is not doing badly," he said.

The On Point report said industrial space had experienced an increase in take up of 4.1% in the third quarter compared with the second quarter of 2013.

Source: BD

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