Work from home is shifting in South Africa
South Africa’s largest property investor, Growthpoint, has shown a strong improvement in its office portfolio, with vacancy rates declining and rent reversion improving.
This was revealed in the company’s trading update for the quarter ended 30 September 2024, which showed a strong performance across the board.
The property investor said this past quarter was the first since Covid-19 when none of its tenants had reduced space in its office developments.
“Notwithstanding ongoing macroeconomic constraints, albeit less severe, and an oversupply of office space, particularly in Gauteng in the Sandton node, our office portfolio KPIs are showing continuous improvement,” Growthpoint said.
The company successfully concluded leases of 48,269 m² and renewals of 30,039 m², reducing vacancies to 14.2% from 15.1% at the end of its financial year in June.
Rent reversions improved significantly, from -14.8% in FY24 to -4.0%. However, this reflects only a three-month period, and the company expects rent reversions in the mid-to-high single digits at year-end.
The lease renewal success rate moved from 62.1% in June to 54.7%, primarily due to two leases of around 24,000m² that were not renewed, accounting for 45.3% of the leases that expired in the period.
One non-renewal was for temporary, short-term space in Cape Town, leased during the renovation of the tenant’s premises. The other was in Rosebank, where the tenant elected to own its new premises.
Growthpoint’s coastal regions continue to outperform the rest of the portfolio as property fundamentals in these areas benefit from more balanced supply and demand dynamics.
Vacancies in KwaZulu-Natal maintained an exceptionally low rate of less than 1.0%, while the Western Cape improved from 5.3% in June to 5.1% at the end of September.
The overall vacancy reduction came primarily from our inland portfolio, where vacancies decreased from 19.3% in June to 18.1%.
Despite these improvements, the company said it will continue to enhance the quality of its portfolio and recycle capital. To this end, it sold two non-core B-grade properties in Gauteng for R98.8 million.
In line with its strategy to exit non-core business nodes, it converted the Pavilion Office Park in Rivonia into sectional title offices, which were sold for R20.8 million to owner-occupiers.
Similarly, Growthpoint approved the disposal of two properties in each non-core business node in Parktown and Bedfordview for a combined R230 million.
Taking advantage of opportunities arising from increased demand for residential property in Sandton Central, it also sold 151 on 5th in Sandton to a residential developer for R78 million.
Scales are tipping
Growthpoint is not the only property investor that has flagged this trend. Emria Property Fund CEO Geoff Jennet says it has noticed that many corporations have compelled employees to return to the office.
He said that listed property share prices are beginning to present a stronger value proposition, which is expected to eventually impact the physical commercial property market.
This trend is already evident, with real estate investment trust (REIT) returns exceeding 50% so far in 2024.
According to Jennett, the clearest signs of a real estate recovery can be seen in the Western Cape, where office spaces that were vacant just 18 months ago are now fully occupied.
He attributed this to the semigration trend, where individuals relocate from one part of the country to another, contributing to the region’s resurgence.
Jennet explained that the enhanced returns are also due to most corporations insisting on a return to in-office work, resulting in a greater need for office space.
“This spells opportunity – particularly in Gauteng, which is the hub of South Africa’s economic engine and where vacancies are still prevalent,” he said.
In 2024, several South African companies – including Vodacom, Nedbank, and Arena Holdings – amended their work-from-home policies and started mandating their employees to return to the office.
These companies are part of a wider trend of South Africans returning to work in the office after the Covid-19 pandemic accelerated the trend of not working from a traditional office.
Earlier this year, Discovery Bank’s SpendTrend24 report revealed that over three-quarters of South African office workers now commute to the office at least three days a week, and people are driving more than ever before.
Discovery said that despite making 10% fewer trips, they’re covering 40% more distance on average each month.
The report attributed this to lifestyle changes, particularly the increased return-to-office movement in South Africa last year.
Vitality Drive data shows that over 75% of clients who work from offices are now commuting at least three days a week.
This article was first published by Daily Investor. Read the original here.
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