JLL South Africa releases Q4 2015 research reports on Johannesburg and Cape Town property markets

Posted On Wednesday, 10 February 2016 15:09 Published by
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The JLL South Africa research team has released its Q4 2015 research reports for the Johannesburg retail market, Johannesburg office market, Johannesburg industrial market and Cape Town office market.

JLL South Africa releases Q4 2015 research reports on Johannesburg and Cape Town property markets

Zandile Makhoba, Head of Research at JLL South Africa, “anticipates that occupiers will delay significant decision making in this uncertain economic climate” fuelled by “further weakening in the Rand, low production activity and low business confidence”.  

“The market is geared in the occupiers favour, with rental rates expected to remain largely unchanged whilst vacancies increase in certain areas,” Makhoba says.

Johannesburg Retail Property

In the retail market, rising inflation with the notable depreciation of the Rand is a concern for retail margins in 2016.

Pressure on South African consumers is mounting with the discouraging recent developments in the economy. In addition to the interest rate hikes, which began in 2015 and are expected to continue in 2016, the Rand declined notably during Q4 2015 forewarning of inflationary pressures to come in the new year. As a result, it is anticipated that retail sales growth will remain in low single digit territory over much of 2016, following the trend of 2015. On a year-to date basis (to October 2015), retail sales growth stood at 3.0%, slightly improved from 2.1% in 2014.

The weakening of the Rand also illustrates the reducing confidence in the South African economy with the sovereign credit rating at risk. As a result, cap rates could see retail property values declining in the year ahead. Successful retailers are those who recognise the growing price sensitivity of the South African consumer given the current economic climate, providing some opportunities on the demand side of retail accommodation. Vacancies in Johannesburg’s retail accommodation remain low, providing confidence for developers.

Johannesburg Office Property

In the Johannesburg office market, 2015 has seen the highest development pipeline recorded according to SAPOA, with exciting flagship developments scheduled for completion within the next two years. Although rental rates have largely remained unchanged during 2015 in most parts of the city, Grade P office accommodation has shown substantial rental growth in the past five years, indicative of a healthy market despite the current economic climate.

Average vacancy rates have seen a slight increase from 11.3% in Q3 2015 to 11.8% in Q4 2015, mainly driven by vacancies in Grade A office accommodation. In contrast, Grade P vacancies remain below 5.0%, while Grade B accommodation has seen growing take-up in selected nodes.

Johannesburg Industrial Property

The vacancy rate in Johannesburg’s industrial accommodation declined to 8.3% in Q4 2015 from 9.9% in Q3 2015. Compared to 2014, rental rates declined by an average of 4.2% in the Johannesburg market. Low demand has created favourable conditions for tenants. Weak global demand remains an obstacle to export activity while the depreciation of the Rand is likely to contribute to a decline in imported goods. Together, these point to weaker demand for industrial accommodation in the year ahead.

Although a weaker currency is theoretically encouraging for local manufacturing and exporting industries, the Barclays Purchasing Managers Index (PMI), which measures confidence in the manufacturing sector, fell further below the 50 index point benchmark in Q4 2015. A reading below 50 indicates a contraction in local manufacturing activity. With importers driving much of the activity in warehousing, this could provide some support for industrial accommodation over the short term.

Cape Town Office Property

In Cape Town, demand in office accommodation showed improvement during Q4 2015, providing a positive start to 2016. The overall Cape Town office vacancy rate declined to 7.2% in Q4 2015 from 9.0% in Q3 2015. The presence of major financial institutions continues to establish a financial district in the northern CBD/ Foreshore attracting both local and international tenants who are increasingly viewing Cape as a strategic location.

Developer activity saw a notable rise in office accommodation during 2015. With the completion of Touchstone and The Pavilion in Q4 2015, the year saw the addition of 43,000sqm of office space. This is expected to increase further in 2016 with 64,700m2 of developments scheduled for completion. Developer confidence in Cape Town has been driven by rising demand for quality office space. Both local and international tenants have leased offices throughout the Cape creating a potential shortage of high quality accommodation in certain nodes.

Almost 80% of developments in the pipeline in decentralised nodes are speculative in nature, sized at no more than 10,000sqm. The gradual addition of moderately sized speculative accommodation over the year ahead should prevent a dramatic oversupply.

The Cape Town office market looks positioned to show a stable, if not slightly reducing, vacancy rate in the year ahead while rental rates should continue to show improvement.

Commenting on the Johannesburg vs Cape Town Office markets, Makhoba says “neither city is immune from the weaker economic climate which has contributed to weaker office demand, although Cape Town actually recorded a decline in vacancies from the previous quarter”.

Makhoba concludes: “Whilst activity in the Johannesburg market has mainly been internal, with tenants moving from one node to another, Q4 2015 saw a notable number of new local and international occupiers finding accommodation in the City of Cape Town. The larger proportion of speculative developments in Cape Town point to greater optimism in the Cape Town market than in Johannesburg.”

Last modified on Wednesday, 10 February 2016 17:04

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