Oversupply has taken its toll on the market
IT COULD be too late to offload office holdings to dilute the underperformance of this part of your property portfolio.
The latest vacancy figures produced by the SA Property Owners' Association (Sapoa) show office vacancies were static in the three months ended December, compared with major declines recorded in the previous quarters.
It could be that deteriorating occupation levels are nearing rock bottom, says property economist Francois Viruly.
However, property funds are still expressing an intention to reduce their exposure to the office market, especially in the northern suburbs of Johannesburg. Oversupply sent vacancy figures soaring in the first three quarters of last year.
Viruly says this year is going to be a year of consolidation in the office property market. Vacancies in the Johannesburg central business district during the fourth quarter of last year were at 21,5%, compared with 21,4% three months ago and 23,6% nine months ago.
Sandton and surrounding areas showed A-grade vacancies of 12,3% compared with 13,6% three months ago and 9,6% nine months ago. Rosebank in Johannesburg recorded vacancies of 21% (incorrect- 12%) against 15,9% three months ago. The figure for Rivonia was 15%, against 19,2% in the previous quarter.
In Western Cape, Bellville's total vacancies slipped to 7,4% from 7,5%, while the figure for the central business district was unchanged at 15,9%.
In Durban, Berea's vacancy level rose 1,8 percentage points to 8,1%, while vacancies in the central business district declined to 9,4% from 10,9%.
Viruly says a considerable number of projects remain in the pipeline, and will come on stream this year, worsening vacancy levels. However, these should subside towards the end of the year.
Sandton and surrounding areas recorded committed new developments of 81748m² and 55749m², which will be available for leasing.
'As long as there is an oversupply of space, rental increases will be close to the inflation rate,' says Viruly.
'Only when supply and demand have reached equilibrium can we expect above-inflation escalations.'
Rentals have tumbled in the past year, especially in the northern suburbs of Johannesburg, affected mainly by the introduction of new developments like Melrose Arch.
Viruly warns that deteriorating vacancy levels in the B-grade category could have negative consequences. 'If ignored it could spark another wave of urban degeneration,' says Viruly.
B-grade space has come under pressure because the difference between Bgrade and A-grade rentals has narrowed, and people renting B-grade offices have upgraded to A-grade space leased at much the same cost.
Rising vacancies in the office sector sparked offloading among investors holding actively managed portfolios.
Publisher: SAPOA
Source: Property Editor
Oversupply has taken its toll on the market
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