To let signs dis­ap­pear­ing fast

De­vel­op­ers start­ing to re­act to strong growth in de­mand

Finweek English Edition - - Property - JOAN MULLER

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 Bgrade space.

OF­FICE VA­CAN­CIES... HOW LOW CAN THEY GO?

Source: Rode & As­so­ciates

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