The office property market in Johannesburg's central business district (CBD) is still on a downward trend, in spite of efforts to revitalise the inner city.

The main reason is that rentals in decentralised nodes such as Sandton have become more competitive, making the CBD a less attractive prospect.

However, the residential property market in the area appears to be faring better, and may still reap the benefits of continuing urbanregeneration projects.

Property economist Francois Viruly of Viruly Consulting says that four years ago about a million square metres of A-grade office space was occupied in the Johannesburg CBD, but that figure ha d dropped to 759 543m² by this June.

"It would suggest that between 2000 and 2004 we have lost about 255 000m²," Viruly says.

But, he says, the amount of Bgrade office space that is occupied has increased by 26 000m².

Viruly says that, according to commercial property association Sapoa's office vacancy figures, Agrade office vacancies in the CBD have increased from 15,9% three months ago to 18,2% in June. He says that as far as B-grade office space is concerned, vacancies have increased from 32,6% to 33,1% over the same period.

"I think that the oversupplied office property market in decentralised nodes has led to rentals which the Johannesburg CBD is finding it difficult to compete with," says Viruly.

"I am not saying that interventions in the CBD have not been successful, but I think the office property market in general has turned against the CBD on a relative basis," he says.

Turning to the amount of office property stock available in the area, Viruly says a look at Sapoa's figures suggest that the stock of A-grade office space has declined over the past four years, by almost 400 000m².

Viruly says the amount of available B-grade office stock has increased by about 100 000m² over the past four years.

"Either some of the A-grade space has now been reclassified as B-grade space, or some of the space has been converted to residential (units), although I would suggest the conversions to residential are in the B-grade space sector," he says.

"I think the CBD is finding itself in a better position from the residential perspective than possibly an office perspective."

The success of the Johannesburg CBD will rely on the continuation of urban regeneration programmes as well as the ability of the market to mop up the extra supply of office space in decentralised nodes, Viruly says.

If space was mopped up it should result in increased demand and higher rentals in decentralised nodes. "This would enhance the price competitiveness of the central business district," he says.

The Johannesburg Development Agency (JDA) concurs with Viruly's views. Tshepo Nkosi, the JDA's executive: marketing and communications , says they reflect the strategy of doubling the residential population of the inner city by 2009.

This would "cohere with the mixed-use integrated precinct plans around a shrunken core CBD footprint", he says, which reinforces the inner city regeneration strategy.

Listed property loan stock company ApexHi Properties, which owns many CBD office properties, says it believes the office property market in the Johannesburg central business district is dying.

CEO Gerald Leissner says he thinks the only demand for office space in the area will come from an expanding regional government, or from the major owners of space such as the big three banks, Standard Bank, Absa and First National Bank.

Leissner says there may also be expansion around the high court and magistrate's courts.

But as far as the leasing of normal commercial space to professional firms goes, there is no demand and businesses are still leaving the area, Leissner says.

ApexHi will not generally buy a CBD office building which has commercial office tenants because the trend in the past four or five years has been for them to leave the area.

ApexHi has found that when leases of commercial office space come up for renewal, tenants tend to move out of the CBD.

Leissner says ApexHi looks for buildings used by government, or where a long lease is in place.

"As buildings are being vacated, they are being mothballed. The regeneration projects in the CBD have not affected the office market from our perspective."

Leissner says there is no doubt there will be residential conversions and development of new residential units in the central business district, although he was aware of only one conversion from office to residential taking place in the CBD at present, at Castle Mansions in Eloff Street.

Business Day