Office vacancy rates on the increase

Office vacancy levels are rising in line with a lack of confidence in the business sector about the country's economic prospects.

The latest SA Property Owners' Association (Sapoa) office vacancy survey for the second quarter revealed that vacancies were higher in 28 of the 48 office surveyed nodes countrywide.

In addition, 20 of the 48 office nodes had a vacancy rate higher than 10 percent.

Erwin Rode, the chief executive of property services company Rode & Associates, said yesterday that there had certainly not been any improvement in office vacancies, which had been the case for a number of quarters.

Rode said office vacancies had more or less peaked but occupancy had not started recovering despite vigorous growth in some sectors of the economy, such as the tertiary sector comprising finance, insurance and property, up until recently.

He attributed this to the business community not having the confidence to commit to three-or five-year leases.

Rode added that businesses were not hiring new staff either and some sectors of the economy had even experienced job losses. The few jobs that were being created were in the public sector.

The office vacancy rate and absence of job creation were aligned, he said. "You don't hire when you don't have confidence to expand."

Despite the high office vacancy levels, Rode said the survey showed that market rentals were still growing significantly rather than declining. For instance, there had been 10 percent growth in office rental prices in Sandton.

"This is an amazing situation and not sustainable."

Sapoa's survey revealed that office vacancies increased in 15 of the 23 office nodes in Johannesburg between the first and second quarter of this year and declined in eight nodes.

Of the office nodes surveyed in Johannesburg, 13 had a vacancy rate higher than 10 percent.

Vacancies rose in five of Cape Town's seven office nodes and two had a vacancy rate above 10 percent, compared with one of Durban's four nodes, one of Pretoria's 10 office nodes and two of Port Elizabeth's four nodes.

Vacancies were lower in three of Durban's office nodes, five in Pretoria and two in Port Elizabeth.

A property market trends report compiled by Sapoa in conjunction with Investment Property Databank, released this week, said the office sector - which came off the lowest base of any commercial property sector in 2009 - posted a total return of 14 percent last year, the highest of the three main market segments.

The other two segments are retail and industrial.

However, it said the "seemingly robust" overall picture masked a number of concerns in the underlying fundamentals for the sector.

The report said that high vacancy levels remained a concern and despite the rapid rate of increase from the trough in 2007 being halted, vacancy rates still rose from an average 10.5 percent to 10.6 percent in December.

It said this indicated the turning point in the market had not yet been reached and these double-digit vacancy rates were by far the highest of any segment.

The report said the high vacancy levels had resulted in base rental growth slowing to only 5.4 percent last year, which was the lowest of the three main commercial property segments and also the first time in five years the annual figure had fallen below the 10-year average.

Get commercial property news by email

Free alerts when we publish — pick a focus or get everything, unsubscribe in one click. Subscribe »