Research

SAPOA Office Vacancy Report 2016

Key findings:

– As at Q3 2016, the national office vacancy rate as recorded by SAPOA, was 10.5% – virtually unchanged from the quarter before.
– The latest quarter also saw asking rentals continue its above inflation trend by posting a year-on-year growth of 8.0% – although down on the quarter before.
– It is also unlikely that the growth in asking rentals is being matched by growth in actual basic rentals. The latest IPD figures suggests that office basic rental growth is trending in the low single digits.
– The backfill risk associated with large corporate new builds are also becoming apparent with pressure building in certain nodes.
– The sideways trend observed in the overall office vacancy rate since 2011 remain in tact – ever since vacancies increased to 9.8% post the recession of 2009. While there has been a couple of quarters of promising uptake of space, this has often been followed by periods of deterioration which has offset the gains.
– Recent data suggests that the fundamentals underlying the office sector, remain fragile with the latest economic growth and employment data pointing to a stagnant, flat growth environment whilst private sector employment and capital investment slumped worryingly in their latest reporting periods. The latest business confidence number improved but remains negative.
– Business & Financial Services Capital Investment – a leading indicator of the office vacancy rate – declined by 6.7% y/y to June, implying that office vacancy rates could deteriorate further before improving.
– The latest quarter saw 60bp improvements in the vacancy rate of Prime & C-Grade offices, whilst the A-Grade office segment also recorded a slight improvement 10bps on a quarter-on-quarter basis. A 50bp softening in the B-Grade segment all but offset these gains though.
– On a municipal level, the lowest office vacancy rate at quarter end was recorded for the City of Cape Town with 7.6%. The highest vacancy rate among the larger metros was recorded in the City of Johannesburg as 11.7% whilst the smaller Nelson Mandela Bay metro recorded an aggregate vacancy rate of 14.1%.
– Inner city vacancy rates remain high and at 1.67 x the level of city decentralized nodes – a similar situation as the previous two cycles when vacancies were nearing peak levels.
– During the quarter ending September 2016, the national inner city office vacancy rate was up 10bps to 15.1% whilst the country’s city decentralized nodes posted an aggregate vacancy rate of 9.0% – virtually unchanged from the previous quarter (not withstanding fluctuations in the underlying nodes).
– The office sector is still firmly entrenched in its recovery phase – which is however, becoming increasingly fragile as a result of the sectors macro drivers. But, given the recent up & down trend in vacancy rates and stabilization of rental levels across most office grades, it would be fair to say that recovery remains on track for now. However, the future trend depends largely on the strength of the growth drivers.

Read more here: SAPOA Office Vacancy Rate Report 2016