Postwar problems in Iraq, the parlous global economy and shrinking
businesses trying to sublet space are weighing down on an already depressed
SA office market. So says Old Mutual CEO Ian Watt, manager of one of the
biggest local property portfolios. "The gravity of the problem is reflected
in the latest Sapix property index figures, which show a 23,7% office
vacancy rate and total office investment returns of only 5,1%," says Watt.
The cause, he adds, is a rush out of the central business districts,
"reckless rezoning and ill-disciplined and highly speculative investment",
particularly in Sandton and the Johannesburg suburbs. Agents don't disagree
with Watt. For instance, the SA Property Owners' Association's March office
vacancy survey shows that 180 000 m² - 16% of total space - is not let. But
Helen Fordyce, joint head of new empowerment office broker Lalela, lists a
total of 239 000 m², including space to sublet by tenants. This adds up to a
vacancy rate of 21%. However, both Fordyce and JHI office broker Debbie
Echstein say something else is happening. There are suddenly many, mainly
large, tenants looking for space in the precise areas Watt says are most
oversupplied. And the agents are being run off their feet. Demand, they
say, is being driven by a new form of major tenant, what Fordyce calls
"quasi-parastatals". These are new organisations formed by government, such
as the National Roads Agency, which recently moved into posh new offices in
Pretoria's Hatfield. Or government institutions such as the SA Revenue
Service, which is expanding and upgrading its office space. "And this
demand shows that suitable large office space is becoming limited," says
Fordyce. "I would say less than 50 000 m² of the 239 000 m² of empty space
is desired by most tenants. The rest - and much of the space to sublet - has
to be refurbished and upgraded." This means Lalela has more than one
potential tenant bidding for some offices, and Fordyce predicts "rentals
will be really hardening within a year". Echstein agrees. " Gross rents
could be over R100/m² in a year or so." That would be more than R80 net
(before property costs). But some owners, such as listed property unit
trust Sycom, are upgrading their old offices for occupation in a year. And
these are being signed up at R65/m².
Publisher: Financial Mail
Source: Ian Fife
The market is worse than you think, says Mutual, but agents are too busy to notice.
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