Real Estate Investor Magazine South Africa June 2015 | Page 43

TRENDS

A Tale Of

Four Cities

Office and industrial space
shows poor to modest growth
BY ERWIN RODE

A

ccording to the latest Rode’s Report on the
SA Property Market, office rentals in Sandton,
the country’s financial hub and premier office
node, are shrinking.
The current poor performance of rentals in Sandton
comes as no surprise, given office vacancy rates that
have been ballooning in recent years.

“The best growth in
nominal rentals came
from Durban and the
Cape Peninsula.”
In the fourth quarter of 2014, market rentals for
grade-A multi-tenanted office property in Sandton
were down by roughly 4%. Of concern, is the fact
that committed new office developments continue to
grow. The square metreage of committed new office
developments in Sandton has now moved past the
highs of the period from 2006 to 2008. This was when
the economy was booming whilst office vacancy rates
were low and declining.
Similar to Sandton, the performance of rentals
in other top suburban office nodes in Johannesburg
www.reimag.co.za

was also poor to modest. As a result, Johannesburg
decentralized as a whole recorded growth of only 2%.
On average, rentals in Pretoria (+5%) and Durban
decentralized (+4%) fared slightly better. The best
performance, however, came from a decentralized
Cape Town. Thanks to office vacancy rates that were
able to move south, the growth in market rentals in
Cape Town accelerated to 10%.
An important pillar of the industrial property market,
namely the manufacturing sector, remains stuck in a
rut. This will explain why growth in industrial market
rentals stayed well below the growth in replacement
costs.
In the fourth quarter of 2014, the best growth in
nominal rentals came from Durban and the Cape
Peninsula, where rentals were up by 7%. On the
Central Witwatersrand and the East Rand, rentals
showed slightly lower growth of 5%. Over the same
period, building-cost inflation — as measured by the
Business Confidence Index (BER BCI) — came in
with growth of roughly 9%. This implies that in all
of these important industrial conurbations, industrial
rentals again contracted in real terms. The implication
of this is that the development of new industrial space
is becoming more uneconomical, unless a long lease
can be signed with a tenant at rentals that reflect a
return on building-construction costs.

RESOURCES
Rode and Associates
JUNE 2015 SA Real Estate Investor

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