Office vacancy rates are indeed falling into single digits and surging building costs mean new developments are typically coming on stream at prices well North of R100/sqm.
 
And gone are the days of generous rent-free periods and exotic tenant installation allowances.  
 
Which is great news if you're an office block owner, having had to take whatever prices and tenants you could in the recent past, when office vacancies were often over 20% in the major nodes. The pain of being in an over-supplied market...
 
Howver, the pendulum swinging in favour of landlords is not great for readers of this column - occupiers of space - who will see a significant operating costs of theirs escalating at rates well above what Mr Mboweni would think prudent.  
 
What to do?

Grin and bear it ... one tactic - not advocated by Alchemy - is to tough it out, knowing full-well that the cycle turns and it'll be a tenant's market again sometime in the future. For us that's akin to leaving a ton of money on the table, passively watching your margins and net profit shrinking. Not recommended at all.

Look to sardine cans for space planning inspiration...there's a school of thought - particularly if you've visited less glamourous offices in high-rent cities like London and Moscow - that tries to keep their rent bill static in a rising market by simply cramming more souls into the same amount of space.
 
But "snug" has its limits, and over-crowding severly impacts on productivity, even if office workers don't express quite the same vicious behaviour as the rats that are used in over-crowding experiments!
 
Focused attention...adverse conditions should be used to deeply evaluate what space is needed and how it is used.
 
And the upside can be huge - companies can shave 10-20% from their occupancy costs through focused interventions along the following lines:
 
1. Understand exactly what you've got, what it is costing you (including all the not-so-obvious factors like parking, rates & taxes and electricity) and how that space is used. This kind of overview allows you to behave more strategically in what can be very high-pressure, tactical lease negotiations.
 
First, occupy all your current space to the maximum before leasing additional premises and dispose of any surplus property as quickly as practical. Second, audit your costs thoroughly to secure savings (we've seen differences in electricity costs/sqm of 150% in the same type/age of building, owned by the same landlord). Thirdly, choose your battles - do you need all your back office staff in high-rent Sandton, or could they be based in the CBD which is 30-50% cheaper? But on the other hand, is the resultant cost saving more valuable than the synergies of co-location? 
2. Business unit charging: people value what they pay for, so charge business units overtly for their space. You'd be surprised at how much more efficiently they use it...

3. Introduce new working practices. Historically cheap space in SA means we've been laggards in adopting new ways of work such as hot-desking and hotelling. In the UK more than 40% of firms have introduced hot-desing since 2001, and (one example of many) Sun Microsystem's property strategy is to get to a ratio of 0.8 workstations per person by 2010. "Musical chairs" takes on new meaning on a busy day at their offices!
 
But new work practices and housing more people in the same space shouldn't be about a reduction in quality and simply "packing them in". The best results have been achieved where a significant investment in furniture and systems has been made (payback typically less than 2 years) to facilitate "sharing" and adequate time has been set aside to tackle the cultural aspect of less private space and no defined territory for each worker.
 
4. Use a tenant representative. A DIY book-shelf might be adequate for your garage, but you wouldn't want to muck about building your own lounge suite. And so it is with high-value leases, where we've seen time and again that the assistance of an expert, tenant-only property advisor can reap huge dividends for end-user MDs and FDs. If you're in a high-stakes negotiation (and a 5 year office lease for your business certainly qualifies) get someone in your corner who knows the rules of that game and can advise you accordingly. 
 
5. Re-read Alchemy's February 2007 article "8 tips to negotiating a successful lease". I won't bore you by repeating the pearls of wisdom (editor's priviledge to leave that phrase untouched!) in our Feb newsletter, but it sets out step-by-step how you should tackle a lease to maximise your benefits.
 
In summary, given that office rentals are set to rise at a rate of 3 to 5 times CPI, responsible business leaders need to tackle the situation head-on in order to make the very best they can out of a bad situation.