Johannesburg - Office rentals in Sandton, the country’s financial hub and premier office node, are shrinking.
The latest Rode Report on the property market said rentals for A-grade, multi-tenanted office property in Sandton were about 4 percent lower in the fourth quarter last year than in the corresponding quarter in 2013.
Erwin Rode, the chief executive of Rode & Associates, the publishers of the report, said the poor performance of rentals in Sandton was not a surprise given the ballooning office vacancy rates in recent years.
The latest SA Property Owners Association office vacancy report revealed that Sandton had a vacancy rate of 12.9 percent in the first quarter of this year, with a 16.6 percent vacancy rate in A-grade offices and 7.7 percent in premium-grade offices.
Rode said it was of concern that committed new office developments continued to grow.
“The square meterage of committed new office developments in Sandton has now moved past the highs of the period 2006 to 2008. This was when the economy was booming while office vacancy rates were low and declining,” he said.
Similar to Sandton, the performance of rentals in other top suburban office nodes in Johannesburg was also poor to modest.
The report revealed that Johannesburg decentralised as a whole recorded growth of only 2 percent, while average rentals in Pretoria grew year on year by 5 percent and in Durban decentralised by 4 percent.
The Cape Town decentralised office market posted the best performance, with market rentals accelerating year on year by 10 percent because of low office vacancy rates.
However, the report revealed that the manufacturing sector, an important pillar of the industrial property market, remained stuck in a rut.
Rode said this would explain why growth in industrial market rentals had stayed well below the growth in replacement costs.
The best growth in nominal industrial rentals in the fourth quarter was in Durban and the Cape Peninsula, where rentals were 7 percent higher, while in the Central Witwatersrand and East Rand rentals rose year on year by 5 percent.
However, building cost inflation in the same period, as measured by the Bureau for Economic Research building cost index, increased by about 9 percent.
The report said house prices were accelerating year on year in Cape Town and Bloemfontein in the fourth quarter, but declining in Port Elizabeth.
Rode attributed this to the unemployment rate in the major metros, adding tat Cape Town had the lowest unemployment rate in recent years and had recorded the strongest growth in house prices.
By contrast, Rode said the Port Elizabeth-Uitenhage metropolitan area had the highest unemployment rate and the poorest growth in house prices.
“The robust inverse relationship between these variables again confirmed that house prices are largely driven by the performance of the local economy – holding constant differences in new supply,” he said.
The report said flat rentals were gaining momentum, with Pretoria achieving a year-on-year growth rate of 8 percent, the East Rand 7 percent and Durban, Johannesburg and Cape Town each 5 percent.