Rental growth of about 20% for some. Can good times continue?
The weak economic activity has not had much of a dampening effect on the demand for office space and rentals.
According to the second quarter of the Rode Report, growth in the office market rentals managed to stay above building-cost inflation.
The report indicates that the development of office space remains a viable option should rental growth continue to outpace replacement. On the supply side, cost growth will eventually serve to put a lid on market-rental growth for existing buildings. The upswing in the office property cycle continues.
John Lottering from Rode & Associates says, given the state of economic activity, one does expect the demand for office rental space to wane and with it, lead to moderating rental growth.
Lottering says that office vacancies and rentals have remained fairly resistant to the scourge of economic slowdown.
Although countrywide office vacancies for prime office space have shown a northward inclination over the past few quarters, the uptick has been marginal and rental growth has not been marred too much, he says.
According to the Rode Report second quarter, rental growth of 19% was recorded in Pretoria and Durban decentralised while Cape Town and Johannesburg decentralised rentals were up by 14% and 8% respectively.
Asked what is driving office rental growth, Lottering says consumers of office rental space include among others financial institutions, insurers and IT providers who have been able to up until now weather the financial storm and keeping vacancies reasonably low.
Looking at the CBD offices, Johannesburg CBD performed the best with nominal rental growth of 24%, Durban 20% and Cape Town and Pretoria grew by 4%.
Some brokers are less cheerful about the office market.
Mark Bradford, from Bradford McCormack, says office rentals are currently flat, but there are deals still being done.
Overall gross rentals in Sandton are priced at R135/m and new stock in priced between R145 to R170 per square meter. Many office tenants are looking for new space closer to transport nodes, especially in areas such as Sandton and Rosebank in Johannesburg.
In Cape Town, office rentals are stagnant in general, says Kathy Divaris, from Divaris Property Brokers.
She says in the Cape Town CBD and Southern suburbs, there has been a huge increase in the amount of vacant office space this year.
Landlords are also starting to find that they have to negotiate rentals with tenants and offer more in the way of rent-free time to attract good tenants.
Asking average Grade A office rental in the CBD, Claremont and Newlands is R120/m2 but one can still find decent space for R95/m2 in these areas.
