SOUTH AFRICA can ill afford a continuation of the indiscriminate zoning and construction that has fuelled an oversupply in the office market, says Ian Watt, managing director of Old Mutual Properties.
'The financial consequences are severe, ' says Watt, adding that it's time for the industry to return to discipline and fundamentals, building only to demand.
'By spreading zonings and sprawling their town or area, some municipalities are stretching infrastructure, with more roads and services over longer distances. In some cases, the infrastructural spend is not available to support new areas being developed.
'It's becoming increasingly expensive and difficult for many workers, notably for those who do not own cars, to get to their offices. The residential component in some areas is growing further and further away from commercial activity. In other areas, office incursions into prime residential areas, as in Claremont, Cape Town, and along Jan Smuts Avenue and Oxford Road, in Johannesburg, are eroding the value of neighbouring homes. '
Watt questions whether there will be job opportunities in new offices being developed through rezonings.
' Are rights being granted in an appropriate relationship to the number of workers seeking office employment ? The lack of circumspection and care in timing of rezoning has undermined the value of perfectly acceptable facilities effectively serving market needs. Over and above the oversupply, returns for investors are being punished.'
He says the oversupply will weaken an already poor performance by South Africa in an international table of office rentals in emerging or smaller economies .
' Office rentals in Sandton and Claremont, Cape Town are a sixth of what is being charged in Moscow and not even half the going rates in Budapest, Istanbul, Lisbon, and Santiago. They are barely a quarter of levels in Tel Aviv, Warsaw and Caracas. They are not even the most expensive in Africa, and lag behind those in Gaborone, Botswana.'
Watt says with new office leases and renewals being struck at discounts, value will continue to spiral downwards.
He says almost indiscriminate rezoning and construction does not provide property investors with the certainty they need.
The industry can not be driven by commissions and fees. Asset management is about creating value for the investor. It is not about fuelling development fees and profits and commissions for speculators.'
Watt says that a further concern is that the current office oversupply may be worse than statistics indicate.
'There have been company rationalisations and these are not necessarily reflected in occupancy statistics. Landlords may be receiving rentals for this spare capacity, but when leases come up for renewal, space take-up is likely to reflect diminished requirements and place a drag on office market recovery.'
Publisher: Cape Business News
Source: Cape Business News
Concerns over office vacancies
Posted On Tuesday, 19 February 2002 03:01 Published by eProperty News
SOUTH AFRICA can ill afford a continuation of the indiscriminate zoning and construction that has fuelled an oversupply in the office market, says Ian Watt, managing director of Old Mutual Properties.
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