SA’s largest listed property company, Growthpoint, plans to convert one of its business parks into a residential property as vacancies in its office sector rise.
The company aims to convert the Riverwoods Office Park in Bedfordview in Johannesburg to a residential property after Airports Company SA (ACSA) vacated the 10,588m² premises, it said in an investor update for the nine months to end-March on Wednesday.
Growthpoint’s office vacancies rose from 19.9% in its 2021 financial year to 22.4%. More than one-fifth of the company’s office gross lettable area (GLA) is in various buildings in Sandton, where it has 27% of total office vacancies.
“The office sector is particularly stressed in Gauteng and [in] Sandton specifically, although we expect this well-established business and financial hub to recover in due course,” the company said.
Some companies are reducing their office spaces because of economic imperatives as some people work from home, but Growthpoint said the initial sentiment that offices would become obsolete are receding as more companies offer hybrid working options.
“Bigger businesses are returning their staff to offices with different strategies, some fully with others still on a rotational system. We have started to see smaller tenants that previously vacated their offices return to the market.”
The group’s average lease renewal term decreased from 4.4 years in its 2021 year to 3.8 years at the interim period of 2022, and has now fallen even further to 2.8 years as tenants remain reluctant to commit.
Some tenants are unwilling to move until they have a better idea of how much space they will need, while others have downsized.
Growthpoint’s retail and industrial properties in its SA portfolio are improving, but load-shedding, the unrest in Gauteng and KwaZulu-Natal in July 2021 and the devastating floods earlier this year weighed on tenants and the business.
The lingering effects of the Covid-19 pandemic, contractual lease increases at above inflation rates, the stuttering local economy and weak demand as more people started working from home created what Growthpoint described as the “perfect storm, resulting in continued pressure on rent reversions”. Rent reversion generally refer to the change in rental when a lease is up for renewal.
The effects of the Russia’s invasion of Ukraine, ongoing Covid-19 lockdowns in China and higher inflation are being felt worldwide.
In April Fitch Ratings assigned Growthpoint its first long-term foreign-currency issuer default rating, of BB+, one rung below investment grade. The rating, which it two notches above that of SA, comes with a stable outlook.
Growthpoint will release its final results on September 14.
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