Advice and Opinion News

Gauteng is still SA’s commercial property’s powerhouse, says Redefine

90 Grayston Drive.

By Scott Thorburn, National Asset Manager (Office), Redefine Properties.

Although attention has been drawn to Cape Town’s commercial real estate industry’s swift post-COVID recovery, Gauteng – the nation’s economic engine – is faring better than some may have thought, with occupancies coming down and rentals on the rise in quality buildings within several nodes. 

Many office buildings in sought after locations in Gauteng that weren’t fully let prior to the arrival of the pandemic, are now fully let, or have minimal vacancies and showing gradual rental growth.

In contrast to the many parts of the world, there has been a noticeable increase in businesses across the country returning to the physical workplace, albeit with a new set of requirements. This is contributing to a high volume of deals, although smaller in nature, in nodes like Bryanston, Sandton, Rosebank, Midrand, Greenstone and Struben’s Valley where vacancies in the Redefine portfolio are currently lower than pre-COVID levels.

Demand for quality spaces in key locations

It’s reasonable to assume that normal property fundamentals have returned to the Gauteng province as demand has increased. Tenants are seeking high-end buildings in prime locations with easy and convenient access to services and facilities.

Companies are willing to spend more to create a better work environment for staff. One that’s comfortable, accessible, and has nearby amenities that will help attract workers back to the office. Even though companies might occupy smaller spaces, the properties they are choosing to occupy are of high quality and offer or are close to amenities.

Refurbishing lower grade properties in prime areas, to turn them into more premium assets, is necessary. Especially as organisations are looking for quality buildings. These quality buildings within sought after nodes have very high occupancy levels. Ongoing refurbishments of lower grade properties will help reduce the province’s overall office sector vacancy.

Increased occupancies bode well for rentals and valuations

The decrease in vacancies and rise in occupancies is encouraging for Gauteng’s rental growth. When discussing rentals, one might immediately assume that the Rand per square metre in Cape Town would be higher. However, the truth is that, aside from the Waterfront node, rentals are modest in the Mother City, even with the low supply and high demand.

While some of the best, fully occupied buildings in Sandton are fetching around R230 per square metre, an iconic P-Grade building in one of Cape Town’s sought-after nodes might struggle to get R190 per square metre. However, commercial rentals in Cape Town have seen sharp increases in the last six months and will continue to firm, resulting in this rental gap narrowing.

Rand per m² property values, which are strongly influenced by rental rates, reflect the strong performance of the key nodes in Gauteng while Cape Town generally continues to have lower rate per m² valuations. The highest value areas within the Redefine Portfolio are Sandton and Rosebank. These nodes continue to perform well for Redefine.

Upsides exist in Gauteng’s office sector

The post-COVID performance of Cape Town’s office property sector has been nothing short of extraordinary. The city experienced a perfect storm on the back of new organisations opening for business, a recovering local Cape Town economy, return to office calls from businesses, increased load shedding leading to more people needing to work in the office and an influx of international call center operations. Not to mention the relatively superior service delivery provided by the City of Cape Town.

Nonetheless, Gauteng can still be considered the financial hub in commercial property. Of course, Gauteng has its own set of problems that keep impeding the sector’s expansion within the province. Not only is there a lack of municipal effectiveness and ever-increasing rates but also low economic growth.

The lack of service delivery can be managed and tempered with a proactive approach by property owners. For instance, Redefine, alongside other property companies operating in the sector, has invested and been involved in city improvement districts in nodes like Sandton, Rosebank, Illovo, Parktown, Braamfontein and Bryanston for many years.

Where these CIDs are in place the improved cleanliness, security, and quality of facilities in the area are noticeable, especially when one compares the state of the environment when leaving the CID areas. Water and electricity supply remain a risk across the country, not only in the Gauteng province. Property owners have mitigated this risk by ensuring back-up supplies to properties, however, this solution is only effective for short term non- supply issues.  

Sticking to age-old fundamentals

The approach that real estate firms in Gauteng should take is to never compromise on quality. If your building is empty, invest money in renovations. If you plan to buy, be aware of where to buy and make your purchase in the right node with the right amenities in proximity. Being ahead of the curve in an area is the opportunity.

The office market in Cape Town will undoubtedly continue to grow and present opportunities as new developments materialise, buildings are renovated, and rental rates rise. However, Gauteng should not be disregarded. If the province can realise economic growth, sort out service delivery issues, it is not unfathomable that the improvement in the commercial property fundamentals and the increase in returns in the province can be as dramatic as Cape Town’s has been in the past twelve months.