THE latest office vacancy figures released by the SA Property Owners Association (Sapoa) confirms that most cities are still battling with an oversupply of empty office space.
The figures show that vacancies in some decentralised office nodes increased from single to double digit figures in the twelve months to end of December last year. This applies notably to Greater Johannesburg nodes such as Sandton, Rivonia, Parktown and Hyde Park/Dunkeld. Other cities also experienced increases in vacancies in most nodes, albeit to a lesser degree.
The only exception is Pretoria where there has been a marked dicline in vacancies since the beginning of last year.
Pretoria’s decentralised suburbs (including Centurion) currently have a vacancy of 6% on average. The average vacancy rate in Johannesburg’s suburbs is 10%, while Cape Town and Durban recorded 9% and 7% respectively.
There also seems to be more life left in Pretoria’s CBD than those in the rest of the country. In The three months to end of December last year the vacancy rate here declined to 12% (16% in September), compared with 24% (24%) for Johannesburg, 16% (16%) for Cape Town and 22,5% (21%) for Durban.
Gerald Davey, regional director of JHI Property Services in Pretoria, ascribes the healthy demand/supply situation in Pretoria to the fact that there has been little speculative development in the city in the last few years (unlike Johannesburg).
Davey says the strong take-up of office space in Pretoria of late has been driven by large auditing firms like KPMG and Price Waterhouse Coopers as well as the SA Revenue Service and other Government departments having relocated to the eastern suburbs.
As a result, Pretoria rentals have firmed noticebly (up to 20% in some nodes in 2001) and are already on a par with those in Durban. And the expectation is that they will continue playing catch-up with Johannesburg and Cape Town.
The outlook for the rest of the country’s office market is, however, less rosy.
Francois Viruly from Viruly Consulting expects that in 2002 the over-supply in the office market will continue to place downward pressure on rental growth and returns. He predicts that with present economic growth forecasts, it should take at least twenty-four months for market fundamentals to stabilize. It is therefore improbable that the R100/m² gross rental mark will be breached during 2002. The average for prime-grade properties will most likely lie closer to the R70/m² to R80/m² range.
He reckons in decentralised office nodes that recorded rising vacancy rates in 2001, one should expect inflation-related rental growth of between 7% and 8%.
Gerald Nelson, chairman of the Association of Property Unit Trusts, says that the oversupply of commercial space in the northern suburbs of Johannesburg and Sandton are of particular concern. He says that in many cases landlords who want to retain tenants after rental contracts have expired, have to be satisfied with renewing leases at lower rentals.
The latest figures from property economist Erwin Rode also reflect that investors are less positive about the prospects for the office market. The figures show that capitalisation rates for office buildings in Johannesburg, Durban and Cape Town have weakened (risen) since the beginning of 2000, the only exception is Pretoria were cap rates have strengthened (declined) from middle of 1999. Cap rates reflect investors’ perceptions of future returns and risk. When rates decrease, investors expect an increase in returns, and vice versa.
Publisher: Finance Week
Source: Finance Week
