Slow economy increases office space vacancies

The slowdown in the economy has caused the take-up of office space to decelerate, resulting in an increase in vacancies and slowing rental growth. An analysis of the latest SA Property Owners' Association office vacancy survey showed that 24 of the 43 office nodes surveyed in the first quarter of this year had a higher vacancy rate than at any time in the previous three quarters.

In addition, 16 of the office nodes had vacancy rates higher than 5 percent in the first quarter of this year. Only six nodes were in this position a year ago. A 5 percent vacancy rate is regarded as the level at which rental inflation will remain strong.

The major central business district (CBD) office market fared relatively well. Johannesburg's CBD had an 8.3 percent vacancy rate, compared with 11.8 percent a year ago, while Cape Town's was at 5.4 percent, compared with 4.3 percent a year ago.

Durban recorded 14.7 percent, compared with 15.9 percent a year ago, and Pretoria's CBD was at 3.7 percent, compared with 3 percent.


Of the 22 office nodes in Johannesburg included in the survey, 17 nodes reported increased vacancies. Five of Cape Town's seven office nodes, two of Durban's four nodes and five of Pretoria's 10 nodes reported increased vacancies.

Erwin Rode, the chief executive of property services firm Rode & Associates, said the take-up of office space had been decelerating for a number of months as the economy slowed down, and there was some new supply in the pipeline in decentralised areas.

"The net result of these two forces is a slight increase in vacancies," said Rode. "The trend is certainly up, but I don't regard it as panic stations."

John Loos, a property strategist at First National Bank, said the prospects last year of strong office rental growth had "gone out of the window". He said that the office sector was facing higher vacancies, slowing rental growth and lower total returns, but was the best-positioned of the commercial property sectors during the recession

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