Is the Office Property Market Slowly Losing Its Shine?
Category News
On the office property front, the Rode’s report notes that rentals of office space in the country’s financial hub and foremost office swell, Sandton, are, in fact, shrinking.
“The current poor performance of rentals in Sandton comes as no surprise, given office vacancy rates that have been ballooning in recent years,” said Erwin Rode, CEO of Rode & Associates, publishers of the report.
In the fourth quarter of 2014, market rentals for A-Grade, multi-tenanted office property in Sandton were down by approximately 4%. Of concern, states Rode, is the fact that committed new office developments continue to increase in size. The square metreage of the aforementioned developments in Sandton has surpassed the highs of the period from 2006 to 2008. This was a time of economic boom, whilst office vacancy rates were low and on a steady decline.
The performance of rentals in other top suburban office spaces in Johannesburg was poor to modest, on an apparent parallel to Sandton. Therefore, Johannesburg, wholly decentralised, recorded a growth of just 2%. Rentals in Pretoria (+5%) and Durban decentralised (+4%) fared slightly better. Cape Town decentralised was the best performer. Office vacancy rates that were able to move south allowed the growth in market rentals in Cape Town to accelerate to an admirable 10%.
Industrial Market
The manufacturing sector, an inarguable mainstay of the industrial property market, remains somewhat stagnant in terms of any real growth. This serves to explain the growth in industrial market rentals staying well below the growth in replacement costs for office space in industrial property.
In 2014’s fourth quarter, the highest growth in nominal rentals saw increases of 7% from Durban and the Cape Peninsula. Rentals showed a slightly lesser growth of 5% in the Central Witwatersrand and on the East Rand. Within the same time frame, building-cost inflation (as measured by the BER BCI) grew by roughly 9%. The implication of this is that in every one of these industrial metropolises, office space rentals showed a marked contraction.
As a result, the development of new industrial space is becoming less economically viable and remains the case unless a long lease with a tenant can be signed at rental rates that produce a return on the costs of building construction within the industrial property sector.
Author: Celine Colpro
