Work from home trouble in South Africa

South Africans are being forced to return to the office, resulting in office vacancy rates improving across the country.

According to Savills World Research, global real estate investment is set to rise by US$747 billion in 2024, with further growth to US$952 billion forecast for 2025.

“According to Savills, this recovery is anticipated to gather momentum in 2025, and by 2026, global activity is expected to surpass the US$1 trillion mark for the first time since 2022,” said Andrew Dewey, MD of Swindon Property, which is Savills’ commercial associate in sub-Sarahan Africa.

“Central banks across major economies have begun to cut policy rates, fears of a global recession have largely been quelled and occupational markets remain resilient. The fundamentals of real estate continue to attract institutional investors, who have increased their market share to the highest level since 2021.”

“A key trend noted by Savills is that commercial real estate is advancing, with more intelligent buildings that enhance working environments and drive net-zero initiatives. Furthermore, tenant experience and satisfaction have become increasingly important in the fight for talent and the drive to encourage employees back to the office.

“In addition, the prevalence of hybrid working has heightened this need as office attendance has shifted towards ‘peak days’, a trend which requires smart management of spaces and facilities. In Europe, office attendance is highest on Tuesdays – reaching 68% occupancy – and lowest on Fridays, at 43%, with a similar pattern observed in the US.”

Although no data on this exists in South Africa, Dewey said that the ‘return to office’ drive has helped to cut vacancy rates in the office sector.

“Generally speaking, across the commercial property markets, while the two recent interest rate cuts of a cumulative 50bps have had a positive impact, showing optimism of a downward cycle, the balancing act between the current high cost of debt and return on investment is still making it hard for buyers’ gearing.”

“The level of distressed sales has therefore increased in 2024, which has been seen specifically in the auction sector.

He added that while Cape Town continues to outperform Johannesburg and KZN, Johannesburg remains the GDP capital, making up the majority of larger transactions still taking place in this province.

The latest Rode report showed that South Africa’s office market recovery continued in Q3, with Cape Town at the forefront with strong demand in many nodes, including the V&A Waterfront and Century City.

The Mother City’s Q3 rental level was 16% higher than pre-Covid levels. Durban has been the second-best performer so far in 2024, driven by the La Lucia/uMhlanga node. The recovery in Gauteng has been slower.

“Positively, Rode notes that recovering business confidence and a low level of new office construction activity augurs well for the office sector’s prospects nationally, particularly in light of the GNU, consistent power supply and declining interest rates,” said Dewey.

“Rode cites the reason for the low building activity as high vacancies due to the work-from-home trend, over-building in the decade before the pandemic, and slow economic growth.”

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