Cape Town's commercial property industry in reasonable shape
Over the past few months the city’s office vacancy rate (7%) has been the lowest in the country, and although rental growth is expected to remain low for the rest of the year, the rate is not expected to decline.
Cape Town’s office market differs from others in South Africa in that rental rates too have remained “largely stable”, says JLL’s latest Cape Town City Report. By contrast, rates have declined in some nodes in Johannesburg and eThekwini. However, the report states: “It is our view that there will be little growth in rental rates until such time as the economic climate improves.”
The average prime rental rate in the city is R205/m², while the average rate for Grade A property is R156/m² and for Grade B property R128/m².
Currently, JLL lists the gross monthly rentals in the following nodes at:
Waterfront: Grade P – R230/m² Grade A – R190/m²
CBD: Grade P – R185/m² Grade A – R153/m²
Century City: Grade P – R200/m² Grade A – R150/m²
Pinelands: Grade P – R200/m² Grade A – R150/m²
Bellville: Grade P – R183/m² Grade A – R143/m²
In total, Cape Town has about 2.6 million m² of office stock and 47 300m in the development pipeline, a figure JLL says is “stable”. The office market in Cape Town has outperformed the rest of the country in terms of vacancy rate and rental growth, agrees Mark Latham, managing director of Pam Golding Commercial.
However it will come under increasing pressure in the short to medium term as occupiers seek to reduce occupancy costs and the demand for office space declines. “This is due to in part to the economic environment we find ourselves in and occupiers seeking more productive, cheaper and innovative ways to occupy office space – such as co-working and flexible office solutions which can offer this. We would therefore expect rentals to remain flat and vacancy rates to potentially increase.”
While Cape Town hosts the headquarters of a number of JSE listed companies, particularly in the retail and financial sectors, the JLL report states that it continues to attract interest from multinationals and global organisations.
“The city’s ability to offer relatively inexpensive skilled labour, as well as a desirable lifestyle proposition for the workforce, makes this an attractive option for international organisations.” The 2017 State of Cape Town Central City Report (by the Central City Improvement District – CCID) showed the city centre’s commercial property market was dominated by retail venues and legal services. In total, it is home to 2 171 formal businesses and 986 retailers. By comparison, in 2012, there were 1 321 formal businesses and about 1 200 retailers operating in the city centre. In the 2016/2017 financial year, property values in the Cape Town CBD amounted to R30.6 billion.
- P-Grade: premium, top quality, modern space.
- A-Grade: not older than 15 years, undergone refurbishments, high quality, modern finishes.
- B-Grade: generally older buildings, but modern standards from refurbishment and renovations.
- C-Grade: fair condition, but with older style finishes, services, and accommodation