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Rosebank and Waterfall surpass Sandton in office construction activity.

Category Comm. & Industrial Property News

The financial hub of Sandton has been home to the highest level of new office development in the country for several years but is seeing a significant slowdown in office space under construction.

This is according to the latest Rode Report on the South African Property Market (Q4, 2019), which points out that Rosebank and Waterfall have surpassed Sandton in terms of the amount of office space under construction.

Published by Cape Town-based property economists Rode & Associates, the report uses data from the South African Property Owners Association to compile part of its quarterly study.

"Developments under construction [in Sandton] have slowed substantially, totalling only about 55 000m² in the third quarter of 2019 - a far cry from the peak of 371 000m² at the end of 2015," the report notes.

Rosebank is booming

In comparison, Rosebank boasts the highest level of new office space under construction at 72 855m², while Gauteng's new Waterfall node driven by JSE-listed Attacq claims second spot with 63 022m² of office space under development.

This means that almost 60% of office space under construction in SA is currently in Gauteng - 22.7% in Rosebank, 19.7% in Waterfall and 17% in Sandton.

And according to the Rode Report, it still is, with average grade A+ (premium grade) office market rentals of around R245 per square meter.

While Sandton is still SA's largest office node by far, major development in the area in recent years has contributed to an oversupply of office space. The report says office property vacancies in Sandton is still in the double digits.

"Sandton's average vacancy rate decreased compared to the second quarter [of 2019], but remained high at about 17%," the report notes.

However, it points out that the substantial slowdown in office developments under construction in Sandton is "a positive factor". It reports that about half of this space was pre-let as at the third quarter.

On the overall property market, the report notes that the office sector "remains worst placed of all the property types due to its significant oversupply, with vacancy rates staying at elevated levels". It adds that for landlords, a positive is that office space under construction is at its lowest since the end of 2005, while building plans passed are falling sharply.

Commenting in the report, Kobus Lamprecht, head of research at Rode & Associates, says: "The office market is still battling to record significant rental growth, with nominal rentals even declining in some nodes. Vacancy rates remain at elevated levels and it is difficult to see the situation turning around any time soon, given the general economic malaise."

He adds: "Nationally, nominal market rentals for Grade A office space grew by 4% in the fourth quarter of 2019 compared to the fourth quarter of 2018, according to Rode's office market survey. This is in line with the 4% growth recorded in the third quarter of 2019 [and] implies that rentals continued to decline in real terms, after accounting for building-cost inflation of about 6%. The last time rentals beat inflation was three years ago."

Author: Moneyweb

Submitted 10 Jan 20 / Views 1691