March 19 2024
Demonstrating ongoing resilience and adaptability, positive shifts in the South African office property market as outlined in the recent South African Property Owners Association (Sapoa) Office Vacancy Survey, underline the potential for optimism in 2024, including a reduction in vacancies across the country, said Andrew Dewey, MD of Swindon Property.
SA’s office market saw its vacancy rates rocket during the pandemic when people had to work from home. But some structural issues are clearly evident in the sector. Certain workers will never return to the office. There are also not enough new companies and growing companies seeking rentable office space especially in Johannesburg.
Reduced Vacancy Rates
According to the Sapoa’s survey, the overall vacancy rate in the third quarter of 2023 improved 30 basis points to 15.2%, which marks the sixth consecutive quarter of improvement since the peak in the second quarter of 2022 at 16.7%.
In January and February 2024, Swindon Property concluded leases for 14 242 square metres of office space to a total value in excess of R115.6m, despite the traditionally quieter holiday season which carries through from December to January.
“Interestingly, the Sapoa survey highlights changing sectoral preferences, with technology and finance sectors showing resilience, and although challenges prevail for traditional industries, the steady improvement in occupancy rates signals a promising trajectory,” Dewey said.
“Importantly, it should be borne in mind the regional nuances in office vacancy rates, notably in the City of Johannesburg, where the rate stands at 18.0%, the highest among the major metros. Conversely, the City of Cape Town’s reduction to a 7.5% vacancy rate demonstrates the popular demand in the province fuelled by a variety of factors including solid infrastructure, proactive, solutions-driven governance, and an investment-friendly and aesthetically appealing environment,” he said.
“This is further fuelled by the fact that Cape Town is seen as one of the most desirable call centre locations globally, with an uptake of thousands of square metres of space by this sector, gathering extreme momentum post-Covid, and especially over the past three years. This has been a huge driver in the low vacancy rate,” he said.
Andrew Dewey, MD Swindon Property
Slowing development activity played a role in restoring market equilibrium. Any development in 2024 will be rolled out gradually as developers tread with caution to ensure pre-let development success and steer in line with tenant demand, despite persistent economic growth challenges.
SA is experiencing increasing international interest with some international companies opening shop, notably in Cape Town.
La Lucia Ridge: Swindon Property recently concluded a lease for A-Grade office space in Milkwood Park in La Lucia Ridge, uMhlanga
It’s no surprise that occupiers’ office requirements have evolved since the pandemic. With an ever-growing focus on the employee experience and an increased emphasis on balancing a quality office with efficient utilisation rates.
More sophisticated occupiers have sought to increase productivity for many years through the design of their workplace. This is now a challenge for all occupiers, especially in an environment where some employees have the choice to attend an office or not. The response of businesses to this challenge has been mixed but it appears increasing numbers are mandating employees back to the office.
“While acknowledging positive shifts in the South African office market, adaptability and innovation are crucial, along with understanding tenant needs beyond physical spaces, balancing value, functionality, and viability through pricing strategies, and reimagining vacant spaces for optimal use,” said Dewey.
Sustainability to the fore
Businesses across all sectors have, and continue to, recognise the need for their office buildings to play an important role in their own sustainability targets. Developers continue to push the boundaries in terms of sustainable development seeking to match their accreditations with their customers’ aspirations, according to Dewey. Awareness and understanding of specification, energy performance and decarbonisation is mixed within the occupier community. This however will become increasingly sophisticated with an emphasis on landlords being able to illustrate how their buildings can assist occupiers on their journey to Net Zero Carbon. The notion of a ‘green premium’ should ultimately erode as sustainability becomes a widely accepted characteristic of prime office space.
“Lease flexibility is not a new phenomenon, nor is the world of flex space, however, the level of demand for both, however, is greater than ever before. Traditional leasing models are increasingly under pressure with occupiers seeking greater lease flexibility to allow them to scale up or down at more regular intervals. One may argue this acts as a convenient hedge against getting post-pandemic space take-up wrong, but the flight to quality is not only driven by specification and sustainability requirements but the ability to offer overall flexibility,” says Dewey.
247@propertyflash.co.za
