Demand growing

Posted On Tuesday, 01 January 2002 03:01 Published by
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Pretoria is experiencing growing demand for office space, unlike Johannesburg, Cape Town and Durban
Pretoria is experiencing growing demand for office space, unlike Johannesburg, Cape Town and Durban

UNTIL recently Pretoria has by and large been ignored by property investors as rental returns on commerciual buildings tended to be lower compared with other cities.

But this state of affairs is changing fast. Notably in the office market where rentals have firmed on the back of a steady increase in demand for space.

Pretoria rentals are already on a par with those in Durban, and the expectation is that they will continue playing catch-up with Johannesburg and Cape Town.

Pretoria’s healthy demand/supply situation is evident form the latest office vacancy figures released last week by the SA Property Owners Association (Sapoa).

They show that Pretoria currently boasts the lowest vacancy rates in the country. In fact, during the nine months to end December, Pretoria was the only city experiencing a decline in vacancies in every one of its eight office nodes (including the CBD). In contrast, Johannesburg, Cape Town and Durban experienced an increase in empty office space in most of its nodes.

Pretoria’s decentralised suburbs (including Centurion) have vacancies of 6% on average. The average vacancy rate in Johannesburg’s suburbs is 10%, while Cape Town and Durban recorded 9% and 7% respectively.

There also seems to be more life left in Pretoria’s CBD than those in the rest of the country. The vacancy rate here declined to 12% (16% in September), compared with 24% (24%) for Johannesburg, 16% (16%) for Cape Town and 22,5% (21%) for Durban.

Gerald Davey, regional director of JHI Property Services in Pretoria, says the strong take-up of office space in Pretoria of late has been driven by large auditing firms like KPMG and Price Waterhouse Coopers as well as the SA Revenue Service and other Government departments having relocated to the eastern suburbs.

New offices currently fetch rentals of over R60/sq m (gross), unheard of only a year ago. According to Davey, Pretoria’s favourable prospects can be ascribed to the fact that few speculative buildings have been erected in recent years (unlike other cities). Davey expects future rental growth in Pretoria to outpace those of other cities.

This sentiment is confirmed by figures from property economist Erwin Rode. They show that capitalisation rates for office buildings in Pretoria have notably strengthened (declined) from middle of 1999 and is currently on a par with Cape Town (see graph).

Cap rates reflect investors’ perceptions of future returns and risk. When rates decrease, investors expect an increase in returns, and vice versa. The last few months saw cap rates rising in Johannesburg and Durban, indicating, of course, that investors are less positive about prospects for these markets.

Rode’s figures indicate furthermore that rentals in some eastern suburbs of Pretoria have risen by as much as 20% in the 12 months to end September last year (compared with average increases of only around 8% in Johannesburg’s northern suburbs).

Brooklyn/Waterkloof seems to have ousted Hatfield as Pretoria’s most sought-after office node. Rentals for new prime offices in this area have more than doubled since 1997 to about R64/sq m (gross).

Prime rentals in Pretoria’s eastern suburbs (R60/sq m on average) have in fact already caught up with those in some of Johannesburg’s northern office nodes like Rivonia and Sunninghill.

Listed property unit trusts and loan stocks probably offer investors the easiest way of gaining exposure to Pretoria’s commercial property market. Funds who own buildings in Pretoria include Premium Properties, Primegro and Octodec.

Joan Muller

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Publisher: Financial Mail
Source: Joan Muller

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