Office Space: Major trend to decentralisation

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Before the onset of the Covid-19 pandemic and the national lockdown, it appeared that CBDs were rising to regain their share of the commercial property market from popular decentralised nodes.

However, a new form of “decentralisation” – people working from home – could prove to be a new challenge if habits formed during the lockdown become entrenched. Still, both central and decentral commercial nodes have their positives and negatives and individual businesses might be more suited to one than the other.

Rampant property development in central business areas over previous years has created an oversupply of office and retail space for today’s “relatively slow demand”. Craig Mott, commercial manager at the Rawson Property Group, says there have been “unusually high vacancy levels” as a result.

These have stabilised rental rates and incentivised businesses to move back to central business areas. There will, however, still be a steady demand for decentralised office space, depending on the nature of businesses, Mott says, explaining that technology has allowed people from different professions to work together from anywhere at any time, leading to a decreased need to work from a traditional office space.

“There will be a lot more of the innovative serviced business parks being introduced, which provide shared meeting rooms; industrial and warehouse facilities; on-site storage space; cafes and restaurants.”

The trend of recentralisation has been a global one for many years, but specific markets respond to this in different ways, explains Frank Reardon, chief operating officer at Fundamentum.

In South Africa – particularly in Cape Town, Joburg and Durban, there are different underlying factors that make CBDs appealing for different segments of the market. “Cape Town, uniquely as a CBD, has remained appealing to blue chip office tenants, residents, tourists and retailers alike.

Johannesburg CBD’s appeal has been far more skewed towards residential development but is weaker on both retail and traditional office interest. Durban has elements of both in that it has attracted residential conversions but still remained an extremely strong retail destination.”

He says Durban’s appeal as an office location has, to date, been limited to niche segments, such as shipping, legal, government, education and call centres. 

Triggers include rents; crime and grime; congestion; strength of CBD public transport; access to amenities and on-site parking.

Well-located decentralised nodes, however, remain sought after for businesses looking for secure standalone premises for their corporate identity, park-like surroundings and high parking ratios, Reardon says, adding that these office parks are often close to sought-after residential areas/ suburbs, adding additional appeal.

With the exception of the Cape Town CBD, John Loos, commercial property economist at FNB, expects CBDs to continue playing second fiddle to higher-quality decentralised nodes.

In a stagnant economy, vacancy rates are also likely to rise in many decentralised nodes and so businesses looking for space will have significant options.

“I thus expect decentralised nodes to continue to be the more popular location option. That’s not to say that CBDs don’t have an important place, especially in terms of their potential for high-density affordable residential accommodation, but I believe the more decentralised urban business model is here to stay.”

He also feels the next phase of decentralisation is likely to entail a greater portion of the workforce “decentralising” even further to working remotely from their homes.

“Remote working has just been given a massive boost from South Africa’s forced lockdown, forcing many officebound employees to get up to speed with technology and working remotely using various video conferencing apps. Once this habit is engrained, I believe remote working will become a far more common practice in the near-term postCovid-19 than it was before the crisis.”

Furthermore, Erwin Rode of Rode & Associates says decentralisation of offices will continue in South Africa due to the country’s “poor public transport and ever-spreading suburbia”.

In addition, to avoid traffic congestion by commuting only 10 minutes to a suburban office, electronic communication has diminished the advantages of physical proximity. “Thus, decentralised office buildings are a great help in keeping the congestion on our road networks within manageable bounds.”

Decentralised and centralised areas hold positives and negatives for businesses and, ultimately, commercial property. These factors can differ from area to area and also city to city, says Fundamentum’s Frank Reardon. 

Some general pros and cons, he says, include:

Rawson’s Craig Mott notes public transport and improved infrastructure in CBDs are driving moves back to these central areas, as are conveniences such as: 

  • Proximity to suppliers and clients.
  • Easy access to railway lines and harbours for import and export.
  • Central locations for access convenience and less traffic congestion.
  • Being in close proximity to other businesses for partnerships/collaboration on projects.

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