Office vacancies worsen in major centres

Posted On Monday, 03 June 2002 10:01 Published by
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The office property market is a long way from solving the problem of high vacancy levels, says JHI Real Estate head researcher Marc Schneider
The office property market is a long way from solving the problem of high vacancy levels, says JHI Real Estate head researcher Marc Schneider.

High vacancy levels persist in major SA centres, worsening everywhere during the past quarter except in Cape Town, according to the latest SA Property Owners' Association (Sapoa) figures.

Schneider's view contrasts with industry claims that equilibrium should be reached soon because of strong take-up.

He says that while take-up of office space has been strong, average supply has been stronger, resulting in a bleaker outlook than is widely acknowledged.

After examining trends for the past 11 years, Schneider says the market is in a vicious cycle, with supply outstripping demand, and that this will persist as long as nothing is done to break the cycle.

Between 1990 and 2000 greater Johannesburg recorded an average annual supply of 277000m² against annual average takeup of 170000m². This means that on average there has been 60% more supply than take-up, says Schneider.

The situation in Cape Town is better.

'Continuing supply at existing average take-up rates means the excess will never be worked out of the system,' says Schneider.

The imbalance between demand and supply can be ascribed to lax strategic planning policy, a speculative approach to development and a drop in economic activity.

The latest Sapoa figures show A grade office vacancies in Johannesburg's central business district up one percentage point to 22,5% in the first quarter from 21,5% to 22,5%; B grade vacancies were 34,2% against 32,3% at the end of the previous quarter.

Economist Francois Viruly says the rise in B grade office vacancies is worrying, as it could signal worsening urban decay.

The A grade vacancies appear to have been stuck between 20% and 23% for the past two years, suggesting that demand-led initiatives 'need further attention'.

He says the infrastructural expenditure seen in Johannesburg's CBD in recent years should help stimulate demand.

The CBD's property market is competing with an oversupplied decentralised office market offering attractive rentals.

Vacancy rates in areas outside central business districts are not rising, suggesting that tenants there are 'finding an environment that reflects their needs', says Viruly.

Sandton and surrounding areas in northern Johannesburg had A grade vacancies of 12,7% at the end of March from 12,3% three months ago and 11,2% nine months ago.

Rosebank registered A grade vacancies of 10,5% against 8,8% three months ago and 9,9% nine months ago.

Viruly says while the northern suburbs are generally under pressure, Sandton and Rosebank are showing signs of stabilising.

Melrose, also in Johannesburg, showed a dramatic increase in vacancies from 1,1% to 27,9% mainly because of the mixed-use Melrose Arch development.

Cape Town's CBD registered A grade vacancies of 9%, down from 11,7% three months ago, while its B grade space was 20,4% empty, against 23,4% during the previous quarter.

Claremont's A grade vacancies stood at 26,8% against 22,8% previously, while Bellville registered A grade vacancies of 4,9% (4,8% previously).

Bellville's B grade vacancies were 20,7%, against 16,8% in the previous quarter.

Durban's CBD had A grade vacancies of 12,8% (9,4% previously) while its B grade vacancies were almost flat at 25,2%.

Umhlanga and the La Lucia area saw A grade vacancies of 9,3% (8,8%) and Westville recorded A grade vacancies of 2,6% (0,6%).

Pretoria CBD recorded 16,9% vacancies against 12,5% in the previous quarter.

Business Day

Publisher: Business Day
Source: Business Day

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