Johannesburg commercial property market overview for q4 2011
Global professional property services firm Jones Lang LaSalle today released its Q4 2011 Research Report on the state of Johannesburg’s office and industrial real estate market.
Despite the last quarter of the year being economically tepid, improved take-up in rentals contributed to minimal increases in rental growth and reduced vacancies in some of the more prominent nodes in the Johannesburg office market.
Office take-up improved in prime areas, mainly in Sandton, Hyde Park and Rosebank, resulting in reduced vacancies in these and a number of other prime Johannesburg suburbs. A large portion of the development pipeline in office rentals is set for Sandton and Bryanston, with Rosebank expecting a major completion of the Standard Bank building on Oxford road in the second half of 2012.
Ndibu Motaung, Head of Research at Jones Lang LaSalle says, “Demand for office space in these suburbs is being driven by companies seeking convenience to transport hubs, particularly within the Gautrain reach, as well as consolidation due to operational efficiencies. But overall, it is interesting to note that demand for offices is somewhat stagnant as occupiers are merely moving between areas, leaving secondary suburbs with higher vacancies.”
Although national vacancies increased in the last quarter from 10.2% to 10.4% according to the latest SAPOA/IPD vacancy survey, Johannesburg office vacancies decreased marginally (10.5% to 10.3%)overall in the same period, highlighting the resilience of the Johannesburg office market compared to other cities in the country.However, Johannesburg vacancies increased on an annual basis, from 9.9% in 2010 to 10.9% in 2011.
Continues Motaung, “Current market conditions in the office rental sphere continue to remain favourable to tenants, and are characterised by high vacancies, flat average gross rentals and a lower speculative development pipeline. The pace of speculative development has significantly slowed in Johannesburg as existing stock levels remain high, with a significant portion of the expected completions already being committed to corporate tenants, such as the Standard Bank building in Rosebank and the Alexander Forbes building in Sandton,”
For its part, the industrial rental market experienced improved activity, again mainly in prime areas particularly within the Eastern areas of Johannesburg, with occupiers settling for secondary grade stock at the expense of softening rentals.The demand was largely realised in the small standard units market. As uncertainty in the economy prevailed, older buildings with more affordable rentals in prime industrial areas such as Meadowdale and has proved more attractive to small business. Companies consolidating operations and considering efficient utilisation of current facilities are also driving demand.
Gross rentals for a prime building in a prime location remain stable, average rentals for smaller units decreased marginally despite increased take-up. This is reflective of landlords’ willingness to reduce rentals in order to ease vacancies. Other notable incentives provided by landlords included shorter leases averaging two years in length. The industrial property market remains tenant favourable characterised by reduced rentals in the mini units markets, shorter lease tenure with a reduced speculative development pipeline.
Concludes Motaung, “It is anticipated that current industrial market conditions will continue in the next 12 to 18 months. Due to the lower speculative developments, we anticipate further take-up to continue as the market absorbs existing stock, resulting in lower vacancies.”
Both the office and industrial market findings should be understood in the context of the environment in which the economy has been operating. The backdrop to the final 3 months of 2011 saw mixed economic data with a contraction in domestic GDP, improvements in manufacturing production as well as marginal improvements in business and consumer demand. Despite these improvements in business confidence, the South African economy is set to face tougher times in the coming year, proving that it is not necessarily immune to the problems faced by the global debt crisis.