Office vacancies drop in metros
Report finds demand rising despite new supply
THE ANTICIPATED supply of an additional 591 000m2 of new developments to the Johannesburg office market has raised concerns about an over-supplied market, according to services and investment management firm Jones Lang LaSalle (JLL).
However, despite weak consumer confidence, anticipated new malls and the growing interest of international brands and retailers were indicative of the positive long-term outlook of the local retail sector in Johannesburg, JLL said in research reports for the second quarter of this year on various segments of the commercial property market in Johannesburg and Cape Town.
JLL said the Johannesburg office vacancy rate improved to 11.3 percent in the second quarter of this year from 11.9 percent in the previous quarter, driven mainly by A-grade space where the vacancy rate fell to 8.8 percent from 9.4 percent.
Despite oversupply, new office developments were still anticipated in Johannesburg, it said.
JLL said the latest additions to the pipeline included 140 West Street being developed by Zen- prop and 4 Stan Road to add 6 000m2 in Sandton by MDS while 4 000m2 would be added by the Hertford Office Park in Midrand by Abland.
It said the Cape Town office market showed an improvement in the second quarter, with the vacancy rate at 8.1 percent from 9.2 percent in the first quarter.
It said this was the lowest vacancy rate in the various South African metros surveyed by the SA Property Owners Association and attributed it partly to the conversion of Triangle House in Cape Town’s central business district (CDB) to residential and hotel accommodation.
Cape Town ahead
However, JLL said the improvement in office space take-up was not limited to the CBD, with all major nodes in Cape Town recording a decline in vacancies.
“The improvement in take-up in Cape Town contrasts with the national trend of declining employment, suggesting the regional economy is doing better than the national average,” it said.
JLL said the vacancy in premium grade (P-grade) office space in Johannesburg remained muted at 5 percent, adding it was worth noting that the share of Pgrade buildings to total stock had increased to 11 percent in the first quarter from 8.4 percent in the fourth quarter of last year.
This indicated the vacancy rate had remained stable despite the growth in supply in this category of building and highlighted the market’s preference, it said.
“The vacancy rate is exemplary of the gravitation of the market towards higher quality accommodation and this is contributing to continued investor confidence despite sluggish demand.
“Vacancies in B-grade buildings remained largely unchanged at 13.9 percent in the quarter. There remains a strong market for these buildings, which account for 33.2 percent of total stock in the city.
“Price advantage is likely to play a stronger role in mitigating any further growth in the vacancy rate,” it said.
However, JLL said economic conditions were likely to see office demand in Johannesburg staying flat for the rest of the year, which would have a similar impact on rental rates and vacancies.
In regard to the retail sector in Johannesburg, JLL said the anticipation of new malls and the growing interest of international brands and retailers was indicative of the positive long-term outlook of the retail sector.
Rental growth
JLL said it was expected that higher rental growth would be maintained in the larger regional and super regional malls while smaller centres struggled to retain less established retailers.
It expected annual rental increases to average about 7 percent in larger shopping centres.
The Mall of Africa in Midrand and the Mall of the South will together add a combined 185 000m2 of gross lettable area for retailers in Johannesburg.
But JLL stressed that the continued expansion of Johannesburg could not be ignored and justified the additional stock in this market.
“Gauteng accounts for a growing 31.7 percent of employment in the country and the migration of professionals from other provinces has increased the combined disposable income in the Johannesburg area,” it said.
JLL said a total of 43 000m2 of new office accommodation was anticipated to reach completion in Cape Town by the end of this year, including the 18 000m2 Bridge Park development in Century City.
It said several speculative developments in Century City were announced in the second quarter.
JLL said the Cape Town office market was showing the first signs of recovery.
“The growth in developments is well paced with the gradual recovery in demand, and the stability shown in the market provides an encouraging outlook for rental growth,” JLL said.