The office property market, which was battling high vacancies even before Covid-19 struck, is starting to see slight improvement in demand for space thanks to easing in lockdown restrictions and the return to the office by many companies.
But rising fuel costs could see tenants allowing employees to work from home to save money on fuel costs, said John Loos, property sector strategist at FNB Commercial Property Finance.
“This could persuade more companies to reduce office space requirements in the near term, putting further upward pressure on office vacancy rates,” he said.
According to the Rode Report for the second quarter of 2022, nationally, office vacancies fell slightly to 14.2% from 14.7% in the first quarter.
Kobus Lamprecht, head of research at Rode & Associates, said they are not optimistic about office-market prospects, given slow economic growth and higher fuel prices.
“We believe that it will take several years to mop up the huge oversupply, which means vacancy rates will stay above the long-term average of 9% for longer,” he said.
Loos said consumer inflation had been driven up by higher transport costs, resulting in interest-rate increases, which are likely to continue throughout 2022.
“Rising interest rates are a dampener for property demand, and they put pressure on property values,” said Loos.
Demand
While real estate investment trusts (Reits) with exposure to offices report increasing demand for space in some areas, it is falling in others.
Growthpoint Properties, SA’s largest listed Reit, said though vacancies were concentrated in specific areas in Gauteng, they were levelling off.
Offices that accommodate flexibility are well-positioned in the market, said Paul Kollenberg, Growthpoint’s office portfolio head.
“While the office sector is slower to recover than others, we are seeing some sporadic green shoots,” said Kollenberg.
He said within Growthpoint, Durban and Cape Town had outperformed Gauteng which has seen stress in prime areas such as Sandton, where they do, however, expect a recovery in time.
Growthpoint recently concluded a long lease with leading SA law firm Fluxmans for a 4,600m2 office space in the Illovo Corner office park on Fricker Road in Johannesburg.
After suffering in the initial part of the lockdown the company has seen a rise in interest in Illovo, with 10 leases signed in the past quarter.
Kollenberg said the Fluxmans transaction took two years to finalise in what has become the norm with some corporates taking longer to make decisions when signing new and renewing lease agreements.
Fluxmans will relocate from Rosebank where the company has rented premises for 30 years.
While other tenants prefer Rosebank offices, Fluxmans saw growth potential in Sandton and identified Fricker Road in Illovo as the right address and commercial epicentre to add value to its business.
Call centre businesses
Frank Reardon, MD of KwaZulu-Natal based commercial broking company Strategic Property Solutions, told Business Day that business process outsourcing (BPO) and call centre companies have been driving demand for office space in Durban, resulting in a reduction in vacancy rates.
“Rentals are competitive in sought after locations, and while the [Durban] CBD office market continues to decline, La Lucia, Umhlanga and Mount Edgecombe are popular with tenants,” said Reardon.
He said there is strong demand for larger offices in La Lucia and Umhlanga, mainly due to BPO/call centre expansion with many of these servicing international clients.
Despite growing demand and uptake of space, rentals in prime nodes have not seen real growth in the past seven years.
In Cape Town, high vacancies make it a tenants’ market with landlords having reduced rentals, while also offering tenants installation allowances, among other incentives.
“There’s been a slight uptick in demand for small and big offices. However, we are still not at pre-Covid activity levels,” said Dave Russell, director for the commercial division at Baker Street Properties.
Kollenberg said green offices are attractive to tenants, and Growthpoint prioritises providing these resource-efficient workspaces, which can result in savings on water and energy.
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