Rode & Associates view office demand, and not office vacancies, as the most crucial indicator when determining the inherent health of the office market.

Erwin Rode, of Rode & Associates, says that if the take-up is greater than the new stock coming on to the market it will start whittling away the vacancies. Rode says total stock less vacancies equals demand.

"If you do this exercise every quarter you get a trend in the market. The demand trend appears to have turned positive, but it's still early days."

Rode says whether the trend continues depends on how the economy performs over the next two to three years. "If the economy were to grow 2% to 3% per annum over the next two to three years, the worst of the oversupply will have been taken up."

However, office rentals are still sliding, according to Rode & Associates, particularly prime CBD rentals. Durban's CBD has again performed the best with a real contraction of only 0,7%, while Johannesburg was worst hit with a real contraction of 31%.

Real office rentals in the decentralised areas of Johannesburg and Cape Town were still firmly in their downswing, while in decentralised areas in Durban and Pretoria, it seemed as if real rentals could be levelling off.

"Interesting, though, is that the rental gap between the cities' decentralised areas is closing, with especially the Pretoria suburbs catching up," says Rode's Report editor Dirk de Vynck.

He says the relatively better performance of Pretoria's decentralised office rentals can be explained by the strong office demand in the area, which according to Rode & Associates calculations, showed a take-up of 140000m² in the 12 months to the end of June this year.

Nationally, CBD office capitalisation rates, the nonlisted equivalent of the forward earnings yield on shares, finally seem to be levelling off at 18%. But Rode & Associates say it is highly unlikely that CBD office capitalisation rates will improve or come down substantially from these levels.

For other property types, there was still no deviation from the increasing (weakening) trend in capitalisation rates, which has been evident since 1996.

Rode & Associates say that the quarter saw no change from the depressed state the industrial property market has been in since at least 1990, with real rentals and stand values continuing on their downward path.

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