Joburg construction fuels office glut

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SandtonCBD1 Independent Newspapers. Sandton. Picture: Karen Sandison.

Johannesburg - Bhekumuzi Makhubo is the man who puts the boom in Johannesburg office construction.

The 25-year-old blasting contractor helps clear space with explosives for a raft of properties under construction in Sandton, a northern neighbourhood that is Africa’s biggest financial district.

More than 257,300 square meters (2.7 million square feet) of commercial real estate was planned there at the end of June, 73 percent more than a year earlier, according to data compiled by Jones Lang LaSalle.

“It’s a sign of more development,” said Makhubo, dwarfed by a crane and bulldozers on August 12 at the site of new offices for insurer Sanlam Ltd.

“There is going to be more and more construction.”

The building boom is running ahead of demand.

Developers are struggling to fill the buildings that have already been completed and the pace of the district’s expansion also is keeping a lid on rents.

The vacancy rate in Sandton was 12.7 percent in the second quarter, up from 4.5 percent a year earlier, Jones Lang said in a report last month.

“There’s a bit of an oversupply,” Fran Teagle, a director for Broll, a unit of broker CBRE Group, said by phone.

“Leasing is slow at the moment and we don’t expect rentals to rise in the short term. There’s quite a lot of vacancy.”

The average monthly rent for prime office space in Sandton was about 201 rand per square meter in the second quarter, little changed from a year earlier, broker Jones Lang estimates.

That’s about $1.74 (R18.71) per square foot, compared with 5 pounds ($8.25) per square foot in the City of London financial district.

The average asking rent per square foot in Manhattan is $5.32, according to broker Knight Frank.

 

Commercial Hub

 

Sandton, once a single 20-story tower and a shopping mall, is also set to displace Johannesburg’s city centre to become South Africa’s largest commercial hub.

The stock market and other companies moved their operations to the suburb starting in the 1990s because of an increase in crime in the city’s historical business district.

Makhubo’s almost daily blasts shift rock for the newest office block within the square mile that houses the Johannesburg Stock Exchange and local headquarters for Citigroup and Deutsche Bank.

 

Subsidising Costs

 

Developers are attracting tenants in Sandton by offering incentives such as rent-free periods and Subsidising the cost of fitting-out offices, Teagle said.

About 20 percent of office development in Sandton is speculative, according to Ndibu Motaung, head of research at Chicago-based Jones Lang.

More than 257,300 square meters of commercial real estate development was planned in Sandton at the end of June compared with about 148,400 square meters a year earlier, according to Jones Lang.

Buildings under construction include a 34,500 square-meter office for law firm Webber Wentzel and 67,000 square meters for Sasol, the world’s largest producer of gasoline from coal, Jones Lang said.

Another eight towers are planned, including the new headquarters of Discovery, South Africa’s largest medical-insurance provider, over the next three years.

The country’s biggest construction companies are Murray & Roberts, Wilson Bayly Holmes-Ovcon and Aveng.

All of them are either involved in, or bidding for, projects in the area.

A 25 percent unemployment rate, electricity shortages and strikes have limited growth in Africa’s second-biggest economy.

While the country avoided its second recession in five years with 0.6 percent annualised growth in the second quarter, GDP is forecast to have expanded by the slowest pace this year since 2009.

That’s limited company investment.

 

New Look

 

Older buildings are being refurbished to keep pace with the new modern styles.

The Sandton City Office Tower, which sits above Africa’s biggest shopping mall, replaced its stark, concrete exterior with a new, glass facade.

That’s the latest trend, according to Gray Todd, an associate at Johannesburg- based Lyt Architecture.

“Forty or 50 years ago, Sandton was a farm,” Todd, an architect of 11 years, said by phone from Johannesburg on August 22.

“Now each new building is trying to outdo and stand out from the rest.”

The construction boom isn’t only about commercial properties.

Homeowners looking to avoid Sandton’s increasingly congested roads are living closer to the financial hub, Jake Hoddinott, a sales and development manager at developer Barrow Group, said.

More than 100,000 commuters travel into Sandton each day and that will increase by about 27,000 once current office developments are completed, according to estimates by Jones Lang.

 

Changing Appetite

 

“The appetite is changing,” Hoddinott of Barrow said in an interview on August 12 at one of the developer’s latest projects.

“There’ll be more traffic and pressure on existing infrastructure. That’ll likely drive people to use public transport. People don’t want to sit in traffic for hours each day.”

Barrow has built Katherine & West, a 10 story mixed-used property 50 meters from the Gautrain station, a commuter service that links Sandton with OR Tambo International Airport, Johannesburg’s city centre and the capital, Pretoria.

The site has seven apartments, including a 734 square meter penthouse that’s on sale for more than 26 million rand.

Makhubo, who works for Domino Blasting, first came to Sandton six years ago after graduating from school.

“In 2020, I don’t even think I’ll be able to recognise the very same building that I’m working on,” he said, wearing blue overalls and a pink hard hat while dragging on a cigarette during his lunch break.

“Everything is changing.” - Bloomberg News



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