Office rentals in key nodes still offer exciting potential despite the challenges

Posted On Monday, 01 August 2016 15:57 Published by
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The weaker economic outlook continues to add pressure on office rentals, but JSE-listed diversified real estate investment trust Redefine Properties (JSE: RDF) says a well located office block with the right offering "should let".

David_Rice_COO_Redefine_Properties

"It is unlikely the current economic conditions are going to change any time soon and this means the outlook for the office rental market remains gloomy. Secondary properties in particular remain under significant pressure to retain and gain tenants. But this should not mean there is no opportunity in this office space either," says Redefine's chief operating officer, David Rice.

Redefine's strategy three years ago to improve the profile of its office portfolio by acquiring modern properties in better nodes, redeveloping and upgrading existing properties places it in a stronger position today. 

"We are now far more invested in areas such as Sandton and Rosebank than previously, for example, and have sold off what we deemed to be secondary properties and will continue to do so," says Rice.

Today Redefine's exposure to these suburbs is approximately R6 billion.

Redefine's new home, Rosebank Towers, a 25 000sqm office block, has been pre-let with rentals upwards of R200/sqm, reflecting the interest in the Rosebank node.

As a result Redefine will shortly begin the demolition of Rosebank Mews and develop a premium grade, 4 star, green-rated office block of approximately 18 000sqm with an abundance of parking, access to the Gautrain, restaurants and retail outlets. 

In addition, Redefine is focusing, as a priority, on upgrading the quality of buildings in these and other popular nodes.  

 "We expect rental growth in Rosebank to continue whereas most nodes are not experiencing real rental growth".

"There is no doubt the landscape for office space is changing and we need to be able to deliver on these future needs. Facilities that allow an office worker to get on with their day-to-day lives with as little hassle as possible will continue to be in demand; as will the right geography and access to facilities," says Rice.

The need for better utilisation of space is increasing as the space per person in the working world shrinks. This is not just an SA phenomenon as major moves in this direction take place globally with many big companies reverting to open plan environments, without dedicated workspaces - even for their executives. 

Demand for serviced offices is a trend that needs to be taken seriously. In line with its continuous pursuit of quality, Redefine has therefore partnered with a flexible workspace solutions company to grow its exposure in this area of the market.

This partnership sees Redefine developing  approximately  5 000sqm across seven sites where it plans to be able to offer flexible workplace solutions. "We hope this will be the first of many developments along these lines. Demand for serviced offices and flexible leases will also increase as more staff members work remotely," says Rice.

In addition the jury is out on future parking requirements in office blocks and whether the current requirement will be reduced in time.

The need for greener space and for older properties to be retrograded via green star ratings will increase, as more companies are required to report on their broader impact on the environment.

"Our aim is for all new offices to have at least a four star green rating and are already making progress on rating existing buildings and hope to be able to certify a number of them by the end of the next financial year," says Rice.

A good relationship with tenants, their representatives and brokers remains crucial as these and other trends unfold and those companies that fail to maintain these high levels of trust and delivery will struggle. 

A sharp focus on operational efficiency, diversity, core portfolio quality, the fine tuning of structures and strong relationships with key stakeholders will continue to drive growth and open the door to opportunities in the office space.

"It need not all be doom and gloom - but future success will require a very clear strategy to be mapped out and delivered upon. The right product will still work and achieve good value despite the challenging economic environment," concludes Rice.  

 

 

Last modified on Monday, 01 August 2016 16:12

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