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May 14, 2008:
A leading property firm reports a 50% increase in enquiries for office space in the Cape Town CBD, compared to that of 2007.
Over the last four years many old office blocks were snapped up to create up market apartments, and as a result, when the economy boomed, all grades of office premises were in short supply. This led to rental increases from around R50 to R60/sq m to the highest levels being achieved at Convention Towers (Cape Town) at R120/sq m at the moment.
However, rentals of R200/sq m, or an increase of almost 70% on the current highest A grade office rental fee, can be expected very soon, believes Graham Alexander, broker and owner of RE/MAX Commercial City, RE/MAX Commercial City, RE/MAX of Southern Africa's commercial and industrial brokerage operating in the Cape Metropolitan region and Western Cape.
"The conversion of older buildings has dried up as there are not many which can supply the required parking ratio of one bay per 25sq m of office space, so all new developments will be from the ground up," says Alexander.
He believes the office rental surge can be attributed to a lack of supply and increased building costs (this due to a shortage of building materials and skilled labour).
"The success of the Convention Towers development clearly illustrates that Cape Town needs to supply top A-grade premises to accommodate blue chip tenants. The spill-over effect of globalisation and more direct flights being introduced from Europe and the Middle East to Cape Town will lead to major global corporations seeking office space in the next 5 to 10 years.
"The take up will probably be rapid once new developments are launched. Rentals could possibly reach R200/sq m plus VAT and beyond, as Southern Africa becomes the gateway to the rest of Africa. Most B-grade (older than 5 years) office blocks are fully let and rentals are around R85 to R95/sq m plus VAT.
"Landlords who held on to their buildings during the transition period in the mid-90s have been fortunate to secure excellent returns of their historic investments costs. Current developers can at best secure an 8% return on investment," he says.
"There are two major new A-grade office blocks currently being planned in the vicinity of Investec's Head Office in the lower CBD precinct.
