Premium-grade offices in SA are being snapped up as companies upgrade their work premises with little difference in rentals in the wake of the Covid-19 pandemic when many firms downsized or cut back on space.
The move to hybrid and remote work has led to a change in the type of office demand. For example, amenities such as cafes, board and meeting rooms as well as “hot desking” are increasingly important for companies seeking to renew the work culture and boost staff morale.
According to the SA Property Owners Association (Sapoa) Office Vacancy Report for the third quarter of 2023, 62% of premium office buildings were fully let at the end of September, up from a trough of 45% in June 2022.
“Over the past few years, tenants have typically traded up in quality, without paying more for modern and efficient space,” said Paul Kollenberg, head of asset management for Growthpoint Properties’ office portfolio.
Vacancies in these buildings have come down from 14.5% at the beginning of 2022 to 9.5%, aided by a significant drop in average rental rates.
The Sapoa report found that rentals differ across nodes. “The small rental gap between premium and A-grade should continue to support tenants’ flight to quality as many occupiers are still reducing floor area,” it states.
Kollenberg said demand depends on locality, while the quality of the space, amenities and convenience are also important considerations for prospective tenants.
“We are seeing high demand from international and local business process outsourcing-type occupiers in the Western Cape and KwaZulu-Natal. They are willing to pay premium rentals for offices close to public transport nodes and suitable for their businesses,” said Kollenberg.
Business process outsourcing refers to companies using third-party vendors or subcontractors to carry out certain aspects of their business operations.
Gauteng is also in demand as a hub for business process outsourcing given the shortage of large spaces in coastal regions, Kollenberg added.
“We expect to see a steady decline in vacancies in our premium buildings and for tenants to continue taking up quality space to attract employees back to the office,” he said.
Still, in a trading update for the three months ended September 30, Growthpoint said vacancies in KwaZulu-Natal rose to 2.6% from 1.7% for all of the 2023 financial year. In the Western Cape, vacancies increased to 8.5% from 7.7%.
But Kollenberg said vacancies in Gauteng continue to decline, with increased activity in upper Sandton and Wierda Valley. The group’s upper Rosebank portfolio is fully let while vacancies in the lower part of Rosebank have declined to 10.1% from 13.7%.
Shimi Morekure, associate broker at Noordman & Associates said some occupiers tend to favour premium buildings with green features such as renewable energy and recycled water to reduce operational costs.
Larger corporates tend to choose such buildings while smaller tenants are more price conscious and in many cases can’t afford the rentals charged for the buildings.
“However, we believe more occupiers will favour premium and green buildings in the long term” as the market stabilises and companies make a full return to the office, Morekure said.
“Occupiers will eventually raise the [green] question when searching for new premises and this will force landlords to upgrade their buildings and get a green star rating.”
Morekure said premium offices in Bryanston, Rosebank, Sandton, Illovo and Midrand have rental escalations of 7%-8%, with gross rentals at R202/m² in Bryanston, and R220/m² and R230/m² in Sandton and Rosebank.
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