Office vacancies at a record 21% high, says Growthpoint

Growthpoint Properties, a bellwether of SA’s commercial real estate market, said on Thursday the office market deteriorated in the three months to endSeptember, with vacancies hitting a fresh high at 20.9%.

The effect of the Covid-19 pandemic on the economy means that smaller tenants cannot afford their space and need to downsize, Growthpoint said in a statement. Others are reluctant to commit to long-term leases as they are uncertain about their future space requirements or cash flows.

Its larger tenants contemplated flexible ways of working from home and office for their staff, though many of them are planning to return to the office from January.

Growthpoint’s comments in a quarterly update reflect an industrywide slump in the already oversupplied office property industry after lockdowns forced tenants to impose hybrid work models that may persist beyond the Covid-19 era.

Offices achieved a renewal success rate of 56.6% during the review quarter, down from 68.58% a year ago, with the average lease renewal term dropping to 2.8 years from 4.4 years previously.

The oversupply of space has put pressure on occupancy levels and rental renewal growth, the company said, adding that it secured the renewal of leases at lower rentals.

“Our most significant concentration of offices is in Sandton where our Gauteng vacancies are concentrated at 26% of total office vacancies.

“The Gauteng region is under significantly more pressure than KwaZulu-Natal and the Western Cape, where vacancies are concentrated in a few buildings.”

However, the retail portfolio recovered during the review quarter, with Growthpoint saying the number and extent of requests for rental relief decreased dramatically.

The tenant renewal success rate rose to 91.9% from 83.52%, but this came at the cost of lower rentals from retail tenants.

The weighted average renewal growth was -17.7% against -11.5% a year ago.

Community shopping centres continue to surpass regional malls and retail centres in office nodes, a pattern that has been in play throughout the pandemic.

The industrial sector fared even better despite tenants being cautious about mediumand long-term lease commitments. Good letting was supported by improved renewal success, with tenant retention increasing to 85.1% from 62.2% and rental reversions improving to -9.2% from -10.9%. Vacancies decreased to 7.4% from 9.4%.

Growthpoint jointly owns the V&A Waterfront precinct in Cape Town together with the Public Investment Corporation, the state-owned asset manager. About 1.6-million visitors descended on the precinct in October, benefiting from the relaxation of lockdown restrictions and as the UK removed SA from its travel red list. The numbers were 28% higher in September and 71% higher than the same month in 2019.

“There has been a definite increase in international tourists off a low base. Barring further international travel restrictions and increased lockdown measures, the number of local and foreign visitors to the V&A Waterfront is expected to increase over the festive season, but at levels below those before Covid,” the company said.

“The slow return of international tourists continues to exert pressure on jewellers, restaurants, tourism and leisurefocused retail attractions.”