Advice and Opinion

Innovative rentals gaining speed in South Africa

The current economic conditions being experienced on a global scale have seen a rise in vacancies for many property owners. Now, more than ever, it is imperative to attract and retain tenants – particularly in commercial office buildings, which have been hardest hit by increasing vacancies.

Sean Paul, Executive Director of Spire Property Management says that an increasing and welcomed trend in South Africa sees the rise of innovative strategies to attract tenants to buildings.

Structured rental deals – rental free periods and fit-out allowances

Paul goes on to explain that one strategy is that of structured rental deals that are tailor made to suite each tenant – saying that it is important to recognize that different tenants have different cash flow scenarios and to create rental agreements that fit in around these scenarios.

“For example, we are currently offering tenants a rental free period during the course of their lease at one of our managed industrial buildings in Germiston, called Meadowbrook. Tenants are being offered the ability to structure up to eight months rent free during their rental period at Meadowbrook. This may not necessarily be at the start of the lease, but can rather be structured around a time when the tenant knows that their cash flow will be minimal – perhaps over their annual shut down.”

Natasha Atkin’s, Regional Manager of Spire’s Johannesburg division, notes that negotiable rentals are a key feature. “At Spire we look to negotiate rentals based on the size of the area that the tenant occupies. At Meadowbrook we are currently offering a rental of only R45/m2 if a tenant rents the entire available vacant space, but we are open to discussion on various area and rental options.”

Paul and Atkins concur that attracting new tenants to a building is key to minimise vacancies but that Spire also recognise that moving a business comes with massive additional costs – from the moving company itself, to the setting up of a new telephone lines, reinstalling the computers, new signage, fit-outs etc.

“Because of these costs it can be difficult for some tenants to then also have to find money for their deposit and the first month’s rent. We can then structure a deal whereby we phase in the expenses and for example, the deposit would then be due later in the rental period and not upfront. We can also look at a structured contribution to the fit-out costs for the premises.”

“In fact, at Meadowbrook, which offers large vacant spaces from 1500m2 upwards, we are currently offering tenant-fit-out allowances of up to R5 million, dependent on the agreement in place. Another such building is 6 – 8 Sturdee Avenue in Rosebank where we are currently offering tenants a double market fit-out allowance (again dependent on the agreement in place), with areas 300m2 upwards available. Here too we are offering negotiable rentals of R150 per square metre for the whole area,” says Atkins. “We are also able to work with a tenants existing lease to allow for relocation.”

“Property rental deals in South Africa have traditionally been very stayed and conservative. However, in order to maximise occupancy within a building and engender lasting, long-term relationships between tenant and landlord, the time has come to take an alternative view on things and to do things differently to suite each individual customer,” concludes Paul. “The use of such innovative strategies is proven to be effective – as is shown by the Spire managed portfolio which continues to buck the trend with low vacancy rates.”