Research

SAPOA Office Vacancy Report

Key findings:

  • As at Q3 2018, the national office vacancy rate as recorded by SAPOA was 11.2% – up 10bps on the quarter before. The sticky vacancy rate (especially in the A-grade segment) has seen asking rental growth slow down to 5.3% year-on-year – down from 6.3% in the quarter before.
  • On balance, the office sector is still in its recovery phase with the overall vacancy rate moving sideways and asking rental growth negative in real terms since 2011. This is indicative of the low economic growth environment coupled with an excess supply in the market.
  • For the thirty-three quarters since Q4 2010, there has been only six quarters of improving office occupancy rate. Despite this, the overall office vacancy rate has only increased by 1.5% during this period highlighting the broadly sideways trend characterising the drawn out recovery phase of the current cycle.
  • The quarter ending September 2018, saw vacancy rates increase in the B-grade, C-grade & Prime grade segments while the A-grade office segment saw occupancy rates improve by 40bps. The largest change was in the Prime office segment with a quarter on quarter deterioration of 120bps to end the quarter at a three year high of 6.7%.
  • As at the end of Q3 2018, the SAPOA OVS sample included more than 2m sqm of green certified office space (~22% of total P & A-grade office GLA).
  • For the quarter ending September 2018, Green Certified Prime & A-grade offices had a vacancy rate of 4.6% versus the 9.2% of all P & A-grade offices & a premium on its asking rental of 14% (R171/sqm vs. R150/sqm).
  • Among the country’s five largest metropolitan municipalities, the City of Cape Town still has the lowest overall office vacancy rate despite a 30bp increase during the quarter. The highest vacancy rate among the larger metros was the 12.8% recorded for the City of Johannesburg which overtook Ethekwini which improved to 12.1% after a 120bp improvement.
  • It’s the first time that the City of Johannesburg has had the highest office vacancy rate among the five largest metros since 2003 when it’s aggregate vacancy rate topped out at 17.1%.
  • The report also analyses office vacancy rates by building size. Interestingly, vacancy rates are the lowest in office buildings smaller than 1,000sqm (4.7%) and larger than 20,000sqm (7.5%) but significantly higher in the middle tiers.
  • At the end of the current quarter, developments under construction totaled 544k sqm. This up from the previous quarter but down significantly from the Q4 2015 peak.
  • Expressed as a percentage of existing market stock, development activity is currently at 2.9% -off the 6.6% high of Q4 2007. One driver of the decline is that many development schemes are scaling down speculative building activity and opting to only phase development on a tenant driven basis.
  • On balance, the office sector is still in its recovery phase with the overall vacancy rate moving sideways and asking rental growth still negative in real terms since 2011. This is indicative of the current low growth environment coupled with the significant excess supply still present in the market.

Read more here: SAPOA Office Vacancy Report (October 2018)