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CBD office space is losing flavour

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Growth is expected in commercial nodes situated outside the city

This year has kicked off well in respect of office vacancies in Durban as companies look to expand and become more efficient with their use of office space.

However, office vacancies in the CBD may increase as much of this positive sentiment and growth is reserved for other commercial nodes.

JT Ross’s Craig Woods says 2018 has started “much more positively than 2017 ended”, with general enquiries for commercial space “on the up”.

“We certainly have a positive outlook for the year. (However) we believe office vacancies in the CBD will continue to increase this year with the majority of the private sector looking to move to the sought-after Umhlanga Ridge areas or popular estate style office parks with shared facilities situated in the Westville and Kloof areas.”

Woods says the Lion Match office park is “surprisingly” the company’s best performing park owing to its central location and industrial office feel. It has also become a destination for employees in surrounding precincts with its coffee shops, hairdressers, gyms and doctors.

“This makes for an ideal and practical office environment for tenants. La Lucia Ridge also performs extremely well and there is constant demand ,especially for large spaces.”

Woods says the Lion Match, Umhlanga and Westville commercial nodes are receiving “a good amount of interest”. Due to demand, rents at the Lion Match office park have increased while rental growth rates in Westville have slowed.

“A few years ago I don’t think we would have predicted getting a higher rate in Umgeni Road than in a park like Westway. We believe the most important factors clients look for when choosing office space are large, rectangular usable floor plates, minimal common areas, shared facilities for staff in the park (coffee shops, gyms), pause areas outside the office for staff, and easily accessible parking where people feel safe.”

According to the latest office vacancy report from the South African Property Owners Assocation (Sapoa), the eThekwini municipal region posted the second highest vacancy rate in Q4 of 2017, with rates at 12.4%. The Durban CBD remained the node with the highest vacancy rate at 18.4%.

The highest vacancy rate among the large municipalities was the City of Johannesburg at 12.6%. The lowest office vacancy rate was the City of Cape Town at 7%. The national vacancy rate in Q4 was 11.2%.

The report also revealed that national asking rental growth slowed further over the last quarter of 2017, and this was indicative of the low growth environment coupled with an excess supply in the market.

“As at Q4 2017, asking rental growth was recorded at 2% year-on-year, down from 2.7% at the quarter before,” it revealed. This level was also the lowest since Q2 2014.

The amount of active new office development has been “trending down” since 2015. Sapoa said demand for space is not growing as employment growth and business confidence remains muted.

The report said: “Office sector recovery remains fragile with the latest economic growth and employment data pointing to a stagnant, flat growth environment. The fact that asking rental growth has also been slowing suggests that occupancy gains are mostly coming at the expense of rental growth. That said, some nodes remain resilient and are bucking the trend.”

Rode & Associates’ latest State of the Property Market report noted the country’s office market was “like a becalmed sailing boat”. There is little growth left in rentals as a result of weak demand-side conditions, and a significant over-supply, with 10% of grade A and B office space vacant.

“In the third quarter of 2017 nominal market rentals in Joburg and Durban decentralised recorded yearly growth of 3%. Pretoria decentralised grew by 2%. The weakest performance came from Cape Town decentralised, where rental rates remained roughly at previous-year levels.

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