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Doughnut effect hits office nodes

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Q: What is the doughnut effect in terms of commercial property?

A: Big office nodes currently have some interesting risks, a major one being what is referred to in the US as the “doughnut effect”.

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That hollow part of the doughnut symbolises the CBD (or decentralised office nodes, in our case) that underperforms the more outlying suburban areas because there is no rush to be in these nodes any more from a residential point of view.

So, would people want to live in the high-density areas of the Cape Town CBD or Sandton or Sunninghill? I do not think so.

So, I think there will be a lack of demand for residential and office space and that means more significant value drops there than in many of the outlying areas. – John Loos, FNB commercial property economist

 

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