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Good times for tenants
Date published 30 April 2009
Empty office space in many of South Africa's prime business nodes jumped noticeably in the first three months of 2009, a key indicator of a rapidly deteriorating economy. SAPOA's Office Vacancy Survey for the first quarter shows empty office space in Sandton - SA's biggest business district after downtown Joburg - had surpassed 6% by end March 2009, a level last seen in 2006.
Sandton vacancies have more than doubled over the past year, from 3.1% in first quarter 2008 to 6.6% in the first quarter in 2009. Empty office space is also mounting in other prominent commercial suburbs of Johannesburg. Over the three months to March 2009 vacancies in Rosebank and Parktown increased from 3% to 4,5% and from 1.4% to 4% respectively. Bryanston/Epson Downs saw office vacancies surge from 4.1% to 7.1% over the same period; Rivonia and Braamfontein are already approaching the 10% level.
Business districts in Cape Town, Pretoria and Durban are showing a similar trend. Vacancies at the V&A Waterfront, one of SA"s most expensive corporate addresses, are up from a negligible 0.3% to 4.9% in the 12 months to March 2009. Bellville, Cape Town's second largest office node after its CBD, saw vacancies rise from 1.6% to 5.3% over the same period. Meanwhile, office vacancies at both mixed-use node Century City and Claremont are sitting at more than 14%. Industry players say although rising vacancies are partly due to new office stock coming on to the market over the past 12 months, there's clear evidence of companies cutting back on office space and putting expansion plans on hold.
Fran Teagle, office broking director at Broll Property Group, says there's no doubt a softer economy is forcing a number of companies to downsize. The upside to that trend is good opportunities are emerging for tenants. Saya Teagle: "Tenants are in a strong position to negotiate renewals on their existing leases, as landlords are reluctant to face new vacancies in this slow market."
Teagle says landlords are also becoming more flexible in structuring deals for good tenants, offering good fit-out allowances and in some cases lower rentals.
Anton de Goede, property analyst at Coronation Fund Managers, says owners of office properties are shifting focus from portfolio expansion to tenant retention. "Keeping tenants is now key for landlords to limit the forseeable increase in vacancies and sidestepping the payment of letting commissions to acquire new tenants and tenant installation costs."
De Goede expects tenants to become increasingly resistant to higher occupancy costs, which he says means office rentals have probably peaked for the next year or two.
Author: FINWEEK
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