These 3 areas in Joburg will account for more than half of new offices

Property group, JLL, has released a new report looking at office rentals in Johannesburg, Cape Town and Durban.

JLL found that there has been a visible downward trend in Durban’s office vacancies, while Cape Town has seen only a slight uptick.

In comparison, Johannesburg remains currently has the highest vacancy rate among the five major metros – despite also accounting for more than 60% of the current pipeline.


Johannesburg

  • Office stock – 10,297,043m²
  • Vacancy rate – 12.8%
  • Rent – R220-260/m²/month
  • Development pipeline – 398,057m²

Following a decline in the vacancy rate for two consecutive quarters, the Johannesburg office vacancy rate increased in Q3 2018.

At 12.8%, Johannesburg currently has the highest vacancy rate among the five major metros covered by SAPOA.

“This emphasises the pressures currently prevalent in the Johannesburg office market. Despite this, development activity is still very high in the city, however, it is concentrated in specific prime nodes (i.e. Sandton, Rosebank and Waterfall),” JLL said.

Office supply in Johannesburg increased by more than 50,000m² in the third quarter with the likes of Rosebank Link being completed in that period.

The development pipeline in Johannesburg currently sits at 398,057m² with Sandton, Rosebank and Waterfall accounting for more than 60% of the pipeline.

Sandton accounts for over 30% of office developments nationwide.

“This shows the strong developer and occupier interest that the node continues to enjoy despite the pressures the market is experiencing,” JLL said.


Cape Town

  • Office stock – 2,629,079m²
  • Vacancy rate – 7.30%
  • Rent – R205/m²/month
  • Development pipeline – 47,300m²

The Cape Town office vacancy rate increased slightly in Q3 2018, to 7.3% from 7.0% in Q2 2018.

However, closer inspection of the figures shows that the increase was largely driven by a rise in supply rather than a decline in demand, JLL said.

Building completions included The Halyard, which added 16,000m2 of office accommodation, at a time when demand is not showing much growth. With 2019 being an election year, activity is likely to slow in the country’s office market, as occupiers adopt a wait-and-see attitude to the political situation.

“There has been little change in the development pipeline in the Cape Town office market, which may be an indication of reduced confidence in the economy.

“While investors wait for improved economic conditions, the city’s development pipeline remains at 47,300m² to be added by 2020.

“It remains a concern that the city may experience a shortage when demand improves. However, while the economy struggles with low growth, slower development activity could prevent a substantial decline in rental rates,” JLL said.

Office demand slowed in Q3 2018, in line with the national trend and the general economic climate. Little improvement in office demand is expected between now and the 2019 elections.

Rental rates in the market have stagnated and will remain so in the coming year if activity does not improve. The city continues to gain from a low vacancy rate which should prevent dramatic declines in asking rentals.


Durban

  • Office stock – 1,617,9363m²
  • Vacancy rate – 12.1%
  • Rent – R205/m²/month
  • Development pipeline – 150,000m²

The office vacancy rate continued to decline in eThekwini during Q3 2018, despite ongoing growth in supply.

However, while there are signs of activity in the Durban office market, rental growth has been muted, most likely as a result of landlords offering greater incentives to retain tenants, JLL said.

The market will gain from the completion of new buildings in the coming year, which are expected to boost rental growth for investors.

The completion of Park Square, a Nedbank development in Umhlanga, has contributed to an additional 18,000m² of office supply in the city.

The development pipeline in Durban is still indicative of stable investor confidence in the market with an estimated 150,000m² already under construction.

“In line with international trends, Durban is seeing a growing number of mixed-use developments. Umhlanga Arch is exemplary of this: the development includes hotel, residential, retail and office accommodation.

“Umhlanga Arch has already secured global investment company Multiply Group, while the Hilton Group will be taking up the hotel component. Such developments are well received in the market and pose a threat to more traditional office developments.

“There has been a visible downward trend in Durban’s office vacancies, with the vacancy rate declining to 12.1% in Q3 2018, from a peak of 14.0% in Q1 2018 which was driven by an increase in supply in late 2017 to early 2018,” JLL said.

The gradual absorption of accommodation is telling of stable demand in the city.

The appetite for modern buildings is evident, with a number of buildings pre-letting well before completion. This could slow the trend in take-up of existing accommodation as occupiers wait for the completions of new offices.

Although demand seems stable in the market, it should be noted that we are still operating in a difficult economic environment.

Rental rates remain unchanged in the Durban office market and this is likely to be contributing to some activity in the market.


Read: Too many people are moving to Gauteng: report

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These 3 areas in Joburg will account for more than half of new offices