Real Estate Investor Magazine South Africa June 2018 | Page 17

FEATURE
market, of which less than 20% was avail-
able at the time of the report. The area
has also seen a steady supply of P- and
A-grade office buildings being construct-
ed over the past year.
The area is in demand with tenants
looking to escape the bustle of Sandton,
in exchange for office parks that tend to
be more spacious and offering more open
areas. As at Q4:2017 the Bryanston node
recorded an overall vacancy rate of 9.1%,
with A-grade buildings being roughly
91.6% let and B-grade stock averaging a
9.4% vacancy rate. Gross rentals achieved
are approximately R150/m².
The Durban CBD comprises a wide
range of office buildings. Due to histori-
cally lower levels of investment in the area,
many buildings are run down and consid-
ered to be C-grade. These make up about
50% of total stock. Many B-grade build-
ings have been either regularly maintained
over the years or upgraded to A-grade
“
Property
barometers still
tell the story of a
flat market which
largely favours
buyers
“
He does caution, however, that tenant
mix and location are essential: “Shops and
services need to be matched to the afflu-
ence levels and the needs of the surround-
ing neighbourhoods.”
Over on the office front, location really
is key - but this shouldn’t be news at this
point. Looking at three major office loca-
tions - Bryanston, Cape Town CBD, and
Durban CBD, Broll Property Group has
recently released the key factors that drive
growth in these sectors.
Each of these areas are easily accessi-
ble via their respective highways, mak-
ing them prime locations for businesses.
Worsening traffic around the country also
means that there is an increased focus on
offices that are situated in areas serviced by
reliable public transport.
According to the reports, Cape Town
continues to buck the national trend with
a healthy outlook for 2018 and decreasing
CBD vacancy figures, down from 11.5%
in June 2017 to 9.9% in February. Na-
tional inner city office vacancy rates were
down to 14.5% with the country’s city de-
centralised nodes at an aggregate vacancy
rate of 10.2%.
The city has seen increasing take-up
and repurposing of older B and C-grade
premises within the CBD as local and,
more increasingly, national purchasers
strive to get a foothold in the market. The
report also notes that P-grade space tends
to be limited due to a lack of new develop-
ments, with vacancies around 10.6%.
A-grade vacancies have been decreas-
ing, sitting at 6.0%, while B-grade and
C-grade buildings were 10.4% and 19.5%
vacant. B-grade buildings were sold for
prices ranging from R10,000 to R14,000/
m², either to be refurbished or demolished,
or to be repurposed for residential uses.
The V & A Waterfront, with an almost
negligible office vacancy rate, remains as
the City’s premier office node with BAT,
EY and PWC having relocated to the pre-
cinct over the last two years.
Over i n Bryanston, the report explains
that affordable rental prices within the
node continue to attract tenants who want
large, modern office spaces with sufficient
parking and good security. The area has
seen a steady stream of new commer-
cial and residential developments being
released into the market over the past
few years, with approximately 53% being
A-grade.
Bryanston hosts large Blue Chip cor-
porate tenants such as Microsoft, Di-
mension Data, Tiger Brands, Facebook,
Google, The Media Shop, Samsung, The
City Lodge Hotel Group and Internet
Solutions. Recently the node has be-
come home to WSP, Gold One as well
as the YUM group. Furthermore, around
22,600m² is expected to come into the
buildings. A- and B-grade buildings each
comprise approximately a quarter of the
total stock. Industry statistics indicate that
buildings in the Durban CBD are approx-
imately 80% let for A-grade stock while
C-grade stock and B-grade buildings face
slightly lower vacancies.
The city is seeing continuous urban
regeneration initiatives, resulting in an
increased demand for quality office space
from both the private and public sectors. It
has been noted that corporates have been
decentralising, with smaller companies
recently taking up available spaces. There
has also been increased take-up from gov-
ernment, call centres, educational facilities
and companies seeking central locations.
As in other CBDs, there is also a trend
towards converting some office build-
ings into either educational or residential
buildings - but this hasn’t seen the success
witnessed in areas like Johannesburg. The
report also notes that there is a demand for
smaller office spaces, tenanted by SMEs.
Durban’s close proximity to the port
has made it a popular choice for shipping,
logistics and maritime companies, while
the legal professional community has also
made long term commitments to target-
ed developments in the area. According
to Broll, the main challenge for the area
is the oversupply of lower quality stock in
need of refurbishment.
The opportunity for investors is clear,
since there is an ever-growing demand
for higher quality and safer office spaces.
The area is seeing little activity in terms
of new builds, with focus being shifted
to refurbishments. As these buildings are
improved and updated, the report notes
that values in the area will rise along
with achieved rentals. As at November
2017, gross rental achieved varied from
R80-R110/m².
Industrial
Finally, let’s take a quick glance at indus-
trial property. The industrial sector has
traditionally been seen as a top-perform-
ing asset class, evident in MSCI’s IPD
SA bi-annual property index published
towards the end of 2017. The report stated
that direct and indirect industrial property
combined achieved a 7% total return in the
first half of the year, with overall vacancies
also declining - down to 3.5%. Zandile
Makhoba, head of research at JLL, how-
ever warns that the market needs to pay
attention to supply and demand.
“While the industrial market seems far
from experiencing an oversupply at current
vacancy rates, it is important to note that
demand is beginning to flatten. The un-
certain consumer market also forewarns of
pressure in the market during 2018. Some
industrial areas saw a bit of a rental cor-
rection in Q3 2017, highlighting that there
is some pressure in the market in the year
ahead – just not as much as we are seeing
in other sectors such as the commercial
market,” she explains.
With the increased popularity of mod-
ern, new industrial parks, older develop-
ments are increasingly under pressure to
find and retain suitable tenants. “In Johan-
nesburg alone, there is at least 500,000m2
of accommodation in the pipeline,” Mak-
hoba says. Figures from the JLL Industrial
Report mirrors Makhoba’s concerns.
It states that 2017 Q4 figures show a
growing trend, with Grade P accommoda-
tion showing an uptick in rental rates, but
the opposite happening for Grade A and
Grade B accommodation. This is an indi-
cation of a segmented market developing:
on the one hand Grade P space continues
to be landlord driven, and on the other
hand an occupier market is developing
in the Grade A and Grade B sector, with
landlords incentivising occupiers with low-
er rental rates.
As the market becomes more competi-
tive, tenants are looking for properties that
are safe, modern, and conveniently located.
Paying attention to shifting trends is key
to finding a property that will add value to
your portfolio.
SA Real Estate Investor Magazine JUNE/JULY 2018
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