Office Market Property Report 2000

Posted On Friday, 15 February 2002 02:00 Published by
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Perhaps the major news currently in the market about the Johannesburg CBD is the sale of the Carlton Centre to Transnet for use, inter alia, as its new corporate headquarters. This move is expected to bring several thousand office workers into the area, which should have positive spin-offs for adjacent and nearby retail facilities.


Perhaps the major news currently in the market about the Johannesburg CBD is the sale of the Carlton Centre to Transnet for use, inter alia, as its new corporate headquarters. This move is expected to bring several thousand office workers into the area, which should have positive spin-offs for adjacent and nearby retail facilities.

Aside from that, CBD office brokers report that the node is seeing little new activity and some tenants are continuing the northwards trend. Top CBD gross office rentals achieved for A-grade space are approximately R32/m2. Capitalisation rates continue to weaken as the gap between CBD and decentralised rentals continues to widen.

Having said that, there are numerous initiatives underway and much hope has been pinned on the successful implementation of the Igoli 2002 plan of action, which lays out a two-year action plan to get the City of Gold back on track.

In both the northern suburbs and Sandton, an under-supply of space may be beginning to emerge. While developers have adopted a cautionary view to new projects in the past 18 months, due to high interest rates and a general economic slowdown, demand has continued although arguably at a slower pace. The result is that this same level of demand is increasingly difficult to accommodate.

Parktown’s office space is achieving gross rentals of between R32/m2 and R45/m2, but the node has little room for new development. The node’s good access and central location between the CBD and northern commercial nodes is one advantage, as is the fact that Parktown is still served by municipal bus routes. The greenbelt environment of the node is an added attraction. On the flip-side, Parktown has little in the way of restaurants or retail facilities, although it is the location of the Sunnyside Crowne Plaza hotel which serves the area.

Rosebank is a well-established commercial node and is one of the few in the northern suburbs which offers a wide array of retail and other facilities, including clinics, hotels and restaurants. Many of these amenities are within walking distance. Although vacancies are low, rentals have remained fairly stable for the past year: the top-end gross rental for prime office space is around the R70/m2 mark, while gross rentals for older space with limited parking are between R45/m2 and R60/m2.

Rosebank is the first commercial node outside the Johannesburg CBD to establish a management district and eventually a City Improvement District (CID). The importance of this move is that Rosebank’s management district (RBMD) is in a position to prevent urban decay, as opposed to the CBD’s CIDs which have a reactive role. The success of the RBMD in achieving the aims of urban rejuvenation will be of interest to commercial nodes around the country.

The first phase of the mixed-use Melrose Arch project is expected to become available at the end of 2000. Brokers report that demand is already being expressed from potential tenants, and the development’s mixture of offices, hotel, conference facilities and retail centres could enjoy high levels of demand.

The Sandton node continues to experience high levels of demand, despite the general market slowdown, and brokers are beginning to report an under-supply of premier office space — particularly in the Sandton CBD. There are several new projects underway e.g. the Johannesburg Stock Exchange, and new heaquarters for Nedbank, Compaq and Discovery Health — but most of this space is already let.

This high level of new development has, naturally, sparked concerns about traffic congestion, which already exist in the central Sandton area. Nevertheless, the Sandton business district continues to achieve consistently high office rentals of around R80/m2 at the top end.

Some companies have moved farther afield. Sunninghill is one northern Sandton node that has benefited from this trend in recent years, although new development is being severely constrained by inadequate road infrastructure and reportedly significant traffic congestion.

Brokers in Pretoria report that the approach being adopted by developers and investors is one of ‘no risk’ and ‘no speculative development’, which is very much the same situation as in the majority of Johannesburg’s office nodes. At the same time, there is an overall under-supply of office space in the market, with available space being scattered in small pockets throughout the different office nodes.

There is some indication that the Pretoria CBD market is stable, especially where landlords are prepared to negotiate attractive tenant installation allowances and other incentives. Perhaps another reason is that the CBD’s office rentals are competitive and good quality space can be let for about R35/m2.

Brokers report that there is a significant shortage of space in Brooklyn and there are expectations that the local council will be implementing a stricter re-zoning policy in the node, which may push up rentals in the coming year. It is furthermore anticipated that land will become increasingly more difficult to re-zone, which may again limit supply and tighten the market. Top-end gross asking rentals in Brooklyn are approximately R55/m2.

Hatfield has seen some movement of tenants outwards to Brooklyn and Menlyn — for many of the same reasons that businesses are decentralising from the Pretoria CBD — perceptions of crime and grime and congestion problems. Medium-sized office developments of between 1,500m2 and 2,000m2 are still expected to take place in the node, but generally only where space is pre-let. Home offices continue to be a major feature of the office market in Hatfield.

As a general comment on the Eastern Suburbs market, enquiries for space are ever harder to accommodate. One of the reasons for this is that the development market is operating on a strict, demand-led, tenant-driven basis and new space is let before the project is completed. This particularly impacts on smaller tenants looking for space of between 100m2 and 150m2, especially when they are unable to afford high rentals.


Arguably, Durban’s CBD office market is confined by a lack of top-notch space. In addition, the A-grade office market seems to be shifting to the north-eastern side of the city, away from what is being seen as the lower-income retail market in the west. There is a view in the marketplace that Field Street is becoming the western boundary of the city’s A-grade office node. Westwards from Grey Street is being seen as an active, high-volume but low-price, retail node — with low demand for offices.

Latest SA Property Owners Association data indicate that Durban CBD currently has an 18% vacancy in A- and B-grade space.

The striking feature about Durban’s decentralised office market is that there is a great deal of land already planned for development, albeit confined to three major projects. The question is whether or not these new office parks have not ‘psychologically’ saturated the local office sector, since there seems to be a market view that, between them, there is sufficient space for office development to cater for several years’ worth of demand.

The other trend worth noting is the preference to develop nodes, rather than just space. Projects like La Lucia Ridge Office Estate and Westway Office Park are in fact becoming nodes in their own right, and have the potential to become almost self-contained mixed-use nodes — not dissimilar to what is being seen in other South African developments, like Melrose Arch in Rosebank, Johannesburg and Century City in Milnerton, Cape Town. This is perhaps even more true of the Umhlanga Gateway New Town Centre project, which is being planned adjacent to the La Lucia Ridge Office Estate.

At the periphery of the CBD is the Kingsmead Office Park in the Kingsmead node, which is located close to the Hilton, the International Conference Centre, Unisa and the SA Reserve Bank buildings — all within walking distance. The rationale behind this development is the provision of ‘decentralised’ office facilities, but at the edge of the traditional CBD. By year-end, gross rentals at the park are expected to be between R55/m2 and R60/m2.

On the Berea, there is limited supply of available office space and rentals can be as high as R55/m2. Office space in prime Musgrave properties such as Price Waterhouse Place, Silver Oaks and Musgrave Centre is reportedly fully let, although there are some small pockets of vacant space along Ridge Road, where rentals are slightly lower at around R45/m2. SAPOA reports that the Berea currently displays a vacancy rate of 4,5%.

To the west, Westway Office Park in Westville continues to benefit from its proximity to the Pavilion Shopping Centre, in addition to good road access. Tenants include IT companies like Dimension Data, and financial services tenants like Santam, in addition to Murray & Roberts.

La Lucia Ridge Office Estate has for several years now been tipped to be ‘the Sandton of Durban’. It is situated in upmarket Umhlanga with good access from the N2 and M94, with Umhlanga Rocks Drive providing the main arterial through the development. Certainly, the node has attracted the head offices of several banking and financial services groups, including BOE Corporate, BOE Private Bank and Deloitte & Touche, among others. Gross rentals at the estate are R50/m2 to R55/m2, including levy and parking. Brokers estimate that by the end of the year, rentals in the node will be R60/m2.

Moreland’s figures show that of 100,000 bulk metres available at the estate, some 87,000 have already been sold. A further phase of 50,000 bulk metres is soon to be made available to the south-east of the existing node. Land prices are between R900/bulk metre and R1,350/bulk metre. Brokers point out that developments are generally displaying a lower bulk than in other office nodes.

In the Pietermaritzburg CBD office market, premier-grade tenants are moving out of the city centre to the decentralised nodes, a trend that is familiar to property watchers throughout South Africa. It is estimated that there is some 35,000m2 of vacant offices space in the traditional core CBD, which is bounded by Berg, Boshoff, Loop and Chapel Streets. It should be noted however that this space tends to comprise older, B- or C-grade buildings with limited parking facilities.

There are three decentralised office nodes that are seeing the lion’s share of new activity. Redlands has just added an additional R15 million of office space to the estate, which has grown into a secure and attractive node offering, inter alia, residential properties and an upmarket hotel, Redlands Lodge. Tenants tend to be professionals and financial services companies. Brokers report that gross rentals of around R45/m2 are the norm.

Cascades Office Park is situated adjacent to the Cascades Shopping Centre which ensures that amenities are within walking distance for office staff. These include restaurants, a post office, banks and general retail facilities. Office rentals at the park are approximately R35/m2 to R40/m2. The Quarry in Hilton offers total office space of about 5,000m2, of which 900m2 has recently been let to the provincial Department of Agriculture. Rentals for offices are between R30/m2 and R40/m2, with professional practices making up the majority of tenants.

Unfortunately for Pietermaritzburg, the capital city debate rages on, a factor which creates ongoing uncertainty in the marketplace. The decision affects all government-related property activity, which tends to have been put on hold for the foreseeable future.


The Western Cape province saw 118,514m2 of office buildings completed in 1998, with plans passed for a further 198,893m2. The Bellville and Cape Town nodes saw the majority of the new development, with 37,346m2 and 71,076m2 respectively.

For the downtown office sector in Cape Town itself, the most important question is how successful urban renewal initiatives are going to be in retaining office tenants in the city centre, in addition to attracting new development. There are widespread concerns that the property market is being deterred from new investment due to comparatively low rentals, weakening yields, traffic congestion, inadequate parking and perceived high operating costs.

A further concern about the downtown office market is its lack of premier grade office space, a factor that is evident in other South African CBDs. CBD brokers report that there is currently only one A-grade building in the city centre that has vacant space available. The same is true of the B-grade office market in the city centre, where there is likewise little stock available. Thus, even when there is demand, supply is limited.

The perception that the CBD offers limited premier grade space creates an additional problem: rental growth begins to slow, which diminishes the likelihood of landlords upgrading their properties, which in turn stunts rental growth further. It has been argued that because of this lack of A-grade space, rental comparisons between the CBD and the decentralized nodes are not relevant.

This may indeed be the case, but it is also true that the rental differential continues to widen.

Nevertheless, there is new activity in the city centre and on its periphery. Investec has reportedly decided to build its new headquarters on the Foreshore and the Clocktower office development of 65,000m2 is being proposed at the V&A Waterfront.

Local brokers report that the decentralized office market in Cape Town remains relatively active, with Tyger Valley and the new developments at Century City and N1 City receiving particular mention as attractive nodes.

Cape Town CBD remains the largest single office node in the city, but Century City will provide the market with a significant, alternative location. The total amount of office space planned for Century City is expected to be in the region of 300,000m2, while the new shopping centre will also include an 8,000m2 office component. The location is accessible from the city centre, the southern suburbs and the growing northern suburbs of the city, although there is a view in the market that the gross asking rentals at Century City are high, reportedly in the region of R60/m2. Nevertheless, the node has already attracted tenants such as Persetel Q-data and Nashua. The Cape Metropolitan Council has acquired land at the site — a decision that sparked some controversy, given prevailing concerns about the city centre.

Close by, the N1 City development is also enjoying active demand levels. The question is whether or not Century City and N1 City are trying to attract the same tenants, in a market which is fairly limited in size. Arguably, N1 City offers a similar location, at a gross office rental of about R45/m2. Competition between the two nodes will be monitored with interest by the property market.

Both Century City and N1 City are examples of the move, country-wide, towards the development of mixed-use nodes, rather than just more office space. Consider Melrose Arch in Johannesburg, or the Gateway New Town Centre in Umhlanga. Plans for Century City include an extensive residential component, hotels, a theatre and other leisure-related projects on the site, while N1 City offers a range of retail and medical facilities.

Apart from these two mixed-use projects, new office development is tending to be fragmented and dispersed throughout the existing office nodes.

Claremont is achieving prime office rentals as high as R65/m2, but the rising problem of traffic congestion and inadequate parking is becoming more pronounced. There are some local commentators who argue that the node is saturated, from a commercial property point of view, and that little new office or retail development is either possible or desirable. Problems such as these begin to cause dissatisfaction on the part of tenants and shoppers, and can eventually lead to slowdown in rental growth.

Nonetheless, the node is considered prime and, during the research for this report, several local property developers indicated their belief that low-bulk office parks in the southern or northern suburbs of Cape Town represented the best investment option in the medium- and even long-term.

Tygervalley remains an active node, where activity is beginning to spill into the northern node of Durbanville. There is talk of local authorities tightening up town planning restrictions on commercial activity and the local council has stated that it will carefully control the release of new land for office projects, to guard against over-supply. According to the council, the municipal region should see a take-up of almost 200,000m2 of existing vacant offices, plus additional office demand of about 326,000m2 by the year 2015.

Top-end office rentals in Tyger Valley of about R55/m2 are reportedly double what they were only a few years ago, although it is arguable that some of Tyger Valley’s success has been at the expense of the traditional Bellville CBD. This node, and others like it including Goodwood and Parow, are being seen as increasingly down-market.

Comparative gross office rentals


R/m2 for A-grade office space

Cape Town CDB




Tyger Valley


Bellville CBD


Source: Rode & Associates

Publisher: JHI
Source: JHI

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