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Resilience in office market

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Sector is healthy with declining vacancies

Cape Town’s office market has proven to be resilient over the past year, despite the impact of the ongoing drought.

According to the latest research, the sector ended 2017 in a “healthy” state, with more office stock coming on to the market while the number of vacancies declined noticeably.

There is concern though that, in the future, the water crisis could possibly deter potential new entrants to the market.

South African Property Owners Association (Sapoa) figures show the number of vacancies in
the Cape Town office market declined to
6.9% in the last three months of 2017, a
0.7% improvement from the same period
in 2016.

While JLL says the conversion of office buildings for residential use contributed to the decline, it notes office stock increased by 4% in the year.

“(This is) an indication that the decline in vacancies cannot be attributed solely to assets being converted to alternative uses,” it says in its recently-released Q4 Cape Town Office Market Report.

The most notable decline in vacancies was in Grade P accommodation, down 4.4% from Q4 2016.

“Bearing in mind there has been a significant addition of Grade P stock, the decline highlights the magnitude of the market’s gravitation toward high-end accommodation in Cape Town. This trend is expected to continue in 2018.”

Other highlights in the report include:

The Grade A market – which accounts for over 50% of the city’s office stock – recorded a 1.0% decline in vacancies to 4.0%.

A more marginal decline was recorded in the Grade B vacancy rate, which reduced by 0.3%.

JLL reports that cautious developer activity has served the Cape Town market well during the tough economic environment of the past two years. However, vacancies generally may have reached a low “from which we may now see slight increases as new developments come on stream”.

“With the impact of office-to-residential conversions likely to lessen in 2018, the gradual addition of accommodation remains the prudent approach. The change in the political climate has improved economic sentiments at the beginning of this year.

“Encouragingly, it has not just been sentiments that contributed to a recovery in the local currency: we’ve moved away from the recession that loomed in early 2017, with the latest GDP growth rate about 2.0% in Q3 2017.”

Baker Street Properties says water supply problems have not yet influenced demand or supply of real estate in Cape Town.

However, in its latest Street Smart Insights report, it warns that property managers and tenants are under pressure to adhere to ever-increasing water restrictions.

The report states that the Cape Town Central Improvement District’s continued efforts to battle degradation and crime in the CBD have paid off. However, parking and congestion is driving the small city trend.

“Companies entering new lease agreements continue to request relatively high parking ratios for their staff, with parking now considered a standard requirement in retaining top talent.

“While innovative solutions have been devised by the private and public sectors to address growing congestion, this trend will always be considered by companies when considering new locations.”

Because every node is not “equally congested”, consideration has to be given to public transport facilities and the possible live, work, play value proposition for employees, the report adds. The continued demand for convenience and compact urban living in Cape Town has resulted in upmarket apartment developments in and around the main commercial nodes. This trend is expected to continue.

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