Popular Business nodes in major cities and towns are starting to run out of office space. While this is good news for landlords, with long-awaited rental growth kicking in, tenants will have the short end of the stick as occupation costs are set to rise markedly over the next 12 months.
Industry commentators say tenants are already battling to find good quality offices in prime areas for less than R100/sq m - a year ago, top-end rentals in posh nodes such as Sandton and the V&A Waterfront in Cape Town were still going for around R85/sq m.

Latest figures from the South African Property Owners Association (Sapoa) show that the vacancy rate of prime, decentralised office space dipped to a record low of 3,7% in last quarter 2006, down from a 12% high in 2003. Vacancies in CBDs have also declined sharply, down from a national average of almost 20% three years ago to the current 11,7%.

Garth Johnson, editor of Rode's Report on the South African Property Market, says vacancies in decentralised nodes will either decline further or start moving sideways as new developments hit the market.

He says developers are clearly starting to take advantage of the opportunities created by low vacancies and the strong growth in office demand. He says committed new developments in all major decentralised areas at end-2006 amounted to roughly 5% of the total gross lettable area of existing prime office stock at end-2005. However, planned office developments will not increase supply immediately as it can take anything from 12 to 36 months to bring new stock to the market.

Latest leasing statistics from major property owners underscore the extent of the office sector's turnaround. Sanlam Properties has seen vacancies in its R8,4bn property portfolio (offices a large portion) drop to a historic low of 2% by end-2006. At the beginning of 2002, vacancies in Sanlam's then R10,9bn portfolio were still at 15,6%.

Listed fund ApexHi Properties, which has a large portfolio of offices in the Pretoria and Johannesburg CBDs, has also seen increased letting activity in recent months. MD David Rice says close to 100 000sq m of office space were renewed in the six months to end-December 2006, with rentals up an average 18%. Vacancies in ApexHi's portfolio are down to an all-time low of 8%.

Steve Grupel, head of Investec Property Group's Gauteng leasing division, reports a similar scenario. He says the office sector is already seeing double-digit rental increases - of between 10% and 20% depending on location and quality of the buildings - on the back of a growing shortage of A and B-grade space.