Vacant offices puts pressure on landlords

In an effort to let space and reduce nagging vacancies, landlords are being forced to be more liberal with broker commissions, tenant installation allowances and rent-free periods.

Office vacancies are rising in SA’s cities as the economy struggles to start humming again, and a recovery is not expected soon.

While most of the increases in vacancy rates are marginal, they confirm a trend that should concern landlords and developers.

According to South African Property Owners Association-IPD (Investment Property Databank) research for the fourth quarter of last year, national office vacancies increased to 10,4% from 10,2% in the third quarter.

Across the country, P-grade space, which is top-quality, modern property, and A-grade space, property not older than 15 years, are performing much better than lower-grade stock.

The A-grade office vacancy rate is 8,5% and P-grade offices have a vacancy rate of below 3%.

Should the rising vacancy rate trend continue, it is expected to damp rental-income prospects and affect valuation rates.

Stanlib property funds head Keillen Ndlovu said yesterday that the number of To Let signs on Rivonia Road had to be seen to be believed. "Here you can easily find two to three big To Let signs outside each of the vacant or partially vacant buildings. This is a reflection of desperation," he said.

The oversupply of office space in the past few years was a result of liquidations of small companies, he said.

The higher the vacancies, the lower the rental income, which leads to a lower property valuation. Mr Ndlovu said vacancies were a cost to landlords due to the opportunity cost of sitting with a vacant or partially let building.

"Higher vacancies mean landlords are paying rates even for vacant space. They are also paying for services like security, gardening, not to mention paying for interest costs if the property is funded with debt without full rental income," he said.

Meago asset manager Thabo Ramushu said office sector recovery would depend largely on the growth in employment in the financial services sector.

"Demand is expected to emanate for the A-grade market with B-and C-grade space likely to suffer further. Decentralised office nodes are expected to show the best growth potential, while central business districts are likely to suffer further," he said.

Mr Ramushu said the industrial market was expected to continue to perform well with minimal vacancies, which fell to 4,2% by year-end.

"However, the smaller and mid-tier industrial units are taking longer to fill up, while the big box, logistic space outlook remains optimistic with limited supply as the underpin," he said.

"Optimism in the building industry remains weak with low levels of building plans passed. Speculative development will remain subdued and should be supportive of the absorption of vacancies," Mr Ramushu said.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    • 19 Jun 2018
      The Capetonian dream is to live by the ocean with the iconic mountain making an appearance somewhere in the horizon. But, that dream comes with a hefty price tag that many simply cannot afford. But, should you venture some kilometres out of the city centre, entirely new realms of beachside bliss await you …
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us