Tuesday, September 25

Mother City’s CBD bucks trend

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Move toward decentralised office space is a global one

The trend towards decentralised office space is growing globally, and South Africa is no exception with these nodes generally recording better vacancy rates than the inner city centralised nodes.

The national vacancy rate in centralised nodes is 13.8% compared to 10.3% in decentralised nodes, according to the latest figures from the South African Property Owners’ Association (Sapoa).

But Cape Town’s central node bucks this trend.

Historically, explains Erwin Rode of Rode & Associates, office space was predominantly located in metropolitan CBDs to take advantage of “agglomeration economics”. But, with the growth of suburbs, the need for decentralised office space – such as offices closer to home – has been growing in many countries, with South Africa no exception, he says.

“This trend has gathered pace ever since and today our cities reflect the two-nation economy: the middle class and the poor. The poor do business in the regressing old metropolitan CBDs, whereas the middle class patronise the posh decentralised nodes like Umhlanga Ridge (Durban) and Sandton (Joburg). These upmarket nodes are typically anchored by super-regional shopping centres.”

The Cape Town CBD is the only exception and Rode attributes this to two things: first that it is on the mountain side bordered by high-income residential areas, where decision-takers live and who evidently want to work close to home; and second, that the Cape Town Central City Improvement District (CCID) was established in November 2000 when regression in Cape Town central was “close to tipping point”.

Offices in CBDs in South Africa are generally poorer performing than offices in decentralised nodes owing, in part, to inner-city degradation. Picture: Pixabay

“The turning point is vividly documented by the peaking of capitalisation rates… a few quarters after the establishment of the CCID. In contrast, the CCIDs in the other metropolitan areas were established after passing the tipping point, but these CBDs are in any case not bordered by upmarket residential areas.”

Rode says the continued success of the Cape Town CBD was strengthened by the rise of the exclusive V&A Waterfront, including its recently developed Silo District. As a result, the traffic to and from the greater CBD “has become a nightmare”.

“Yet, going by the market rental rates commanded by the greater CBD, office users are prepared to pay this price for the ‘address’ offered by the CBD and environs”

Using the latest Rode Report data, Rode says some of the highest market-related grade-A rents are achieved in the decentralised nodes of Joburg’s Rosebank (R190/m² a month gross), and Sandton CBD (R179/m²) – both thanks to the Gautrain stations – and the Silo District in the V&A Waterfront (R185/m²).

“In fact, considering the market rents of all the nodes in the Cape Peninsula, it is evident that the greater CBD nodes command the highest rentals. This is the only CBD in South Africa where the central nodes outperform the decentralised nodes.

“In contrast, Umhlanga Ridge and La Lucia, the best nodes in Durban, can only muster R140/m² for grade-A space.”

Rode says the market-rental rate that a node commands is a good gauge of its attractiveness.

Although the national vacancy rate in decentralised nodes is lower and saw a bigger improvement than the vacancy rate in centralised nodes, 16 out of 49 decentralised nodes in the country are still recording worsening occupancy rates with Sandton, Sunninghill and Joburg’s Parktown recording vacancy rates in excess of 14.5%.

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