Of­fice va­can­cies set to re­main steady

The Star Early Edition - - NEWS - Roy Cokayne

OF­FICE va­cancy rates in South Africa in­creased by 0.2 per­cent to 10.7 per­cent in the fourth quar­ter of last year, com­pared with the pre­vi­ous quar­ter. The prob­a­bil­ity is that they could de­te­ri­o­rate fur­ther be­fore im­prov­ing.

The lat­est of­fice va­cancy re­port pub­lished by the SA Prop­erty Own­ers As­so­ci­a­tion (Sapoa) said the side­ways trend ob­served in the over­all of­fice va­cancy rates since 2011 re­mained in­tact in the fourth quar­ter of last year since va­can­cies in­creased to 9.8 per­cent after the 2009 re­ces­sion.

Sapoa said that while there had been a cou­ple of quar­ters of promis­ing up­take of space, this had of­ten been fol­lowed by pe­ri­ods of de­te­ri­o­ra­tion that off­set the gains. But Sapoa stressed that re­cent data sug­gested that the fun­da­men­tals un­der­ly­ing the of­fice sec­tor re­cov­ery re­mained frag­ile, with the lat­est eco­nomic growth and em­ploy­ment data point­ing to a stag­nant, flat growth en­vi­ron­ment.

It said the cu­mu­la­tive im­pact on ac­tual square me­tres of va­cant space had been sig­nif­i­cant.

“Since 2011, a net to­tal of 475 000m² has been va­cated, un­der­ly­ing the lack of growth driv­ers of of­fice de­mand which has been out­stripped by sup­ply,” it said.

The as­so­ci­a­tion said busi­ness and fi­nan­cial ser­vices cap­i­tal in­vest­ment, a lead­ing in­di­ca­tor of the of­fice va­cancy rate, slumped by 12.3 per­cent year on year to Septem­ber and was “as much as 55 per­cent off pre-re­ces­sion lev­els of 2008”. This raises the prob­a­bil­ity that of­fice va­cancy rates could de­te­ri­o­rate fur­ther be­fore im­prov­ing.

Sapoa said his­tory sug­gested the re­cent slump in fi­nan­cial and busi­ness cap­i­tal in­vest­ment posed a risk to of­fice oc­cu­pancy rates two to three years down the road and, by con­se­quence, rental growth and re­turns.

It said the of­fice sec­tor was still firmly en­trenched in its re­cov­ery phase, but this was be­com­ing in­creas­ingly frag­ile be­cause of the sec­tor’s macro driv­ers. The va­cancy rate of prime of­fices im­proved by 0.3 per­cent to 4 per­cent in the fourth quar­ter from the pre­vi­ous quar­ter, but the A, B and C grade of­fice seg­ments recorded de­te­ri­o­rat­ing oc­cu­pancy rates.

De­spite this neg­a­tive in­vest­ment en­vi­ron­ment, de­vel­op­ment ac­tiv­ity re­mains high.

Sapoa said de­vel­op­ments un­der con­struc­tion to­talled 717 000m² at the end of the fourth quar­ter, which was down from the 2015 fourth quar­ter peak of 982 000m².

But Sapoa said de­vel­op­ment ac­tiv­ity, ex­pressed as a per­cent­age of ex­ist­ing mar­ket stock, was cur­rently at 4.1 per­cent and off the highs of 2007-2008, but still on the high side, given the ab­sence of growth driv­ers on a na­tional level. It said sev­eral large of­fice de­vel­op­ments came on to the mar­ket dur­ing the course of last year, re­sult­ing in the to­tal de­vel­op­ment num­ber re­duc­ing slightly.

Sapoa said an­other rea­son for the de­cline was that some de­vel­op­ers were scal­ing down spec­u­la­tive build­ing ac­tiv­ity and opt­ing to only phase de­vel­op­ment on a ten­ant-driven ba­sis. De­vel­op­ment ac­tiv­ity con­tin­ued to be con­cen­trated, with 89 per­cent of of­fice de­vel­op­ments tak­ing place in 10 nodes, with Gaut­eng of­fice nodes dom­i­nat­ing the rank­ings ta­ble.

Sand­ton con­tin­ued to ac­count for the bulk of de­vel­op­ment ac­tiv­ity and at the end of the fourth quar­ter ac­counted for 48 per­cent of na­tional of­fice de­vel­op­ment. The rapidly grow­ing greenfield de­vel­op­ment nodes of Water­fall and Highveld Technopark, to­gether with the more ma­ture Rose­bank node, rounded out the top four with sev­eral large scale de­vel­op­ments in progress.

Sapoa’s lat­est of­fice va­cancy re­port says the side­ways trend seen in of­fice va­cancy rates since 2011 re­mains. PHOTO: NI­CHOLAS RAMA

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