'Our recent letting experience shows that an A grade office building in decentralised areas such as Sandton achieves gross rental of between R55/m² and R60/m².'

Based on an exercise by quantity surveyors Norval Wentzel Steinberg, and taking into account anticipated higher building costs, a similar building completed in mid-2004 will require nominal gross rental of R85/m² to R90/m² to achieve an initial 12,5% return. 'This is about 50% higher than today and should benefit owners of existing buildings.' While vacancy rates in decentralised office markets remain high, there has been a marked decrease in new projects being started.

'We remind investors that, while property income will be affected by a downward phase in the business cycle this year, it is often better placed than other sectors because leases are essentially long-term contracts and enjoy annual escalations,' Rainier said.

Business Day