Property sector: boom or gloom?
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Cape Town - Despite a tight economy, Cape Town’s CBD has seen new property developments worth more than R950 million in the past nine months.
But some property analysts have raised concerns about the commercial property vacancy rate, saying the sector has been struggling to regain its former “boom time glory” of more than a decade ago.
They also warned the performance of the sector closely correlated with the performance of the economy and it was expected that it would continue trading in a difficult environment.
The State of Cape Town Central City Report 2018 by the Cape Town Central City Improvement District (CCID) showed 39 new developments (at various stages) worth more than R13.5 billion in the CBD.
The value of property in the CBD soared by nearly 40%, from R30.628bn in 2016/2017 to R42.860bn in 2018/2019.
CCID board chairman Rob Kane said the report showed sustained confidence in the development potential of the central city.
“Combined with the developments under way or proposed, the overall picture shows confidence in the development potential in the central city,” he noted, adding an increase in gross valuation of properties for the CBD was also “heartening”.
FNB property analyst, John Loos, has warned of a weakening supply-demand gap in the commercial sector.
“I think there is something of an oversupply of commercial property in the Cape Town CBD,” Loos said, adding that the office vacancy rate remained “stubbornly high” when compared to 2008 and even 2018.
According to SA Property Owners Association’s 2019 first quarter figures, the office vacancy rate was at
But the CCID report attributed the increased vacancy rates in 2017 and 2018 primarily to 30 000m2 of new office space coming onto the market.
Property economist, Francois Viruly, said the problem was the “length” of the slump and not necessarily its depth.
“The problem in the South African office sector is not so much excess developments, but rather a low level of demand driven by poor economic growth.
“Added to this tenants are reconsidering the type and quantum of space they require and are negotiating hard on rentals, escalations and the length of leases,” Viruly said.
However, Kane was optimistic: “In terms of office rentals, rates have remained largely stable. Stronger drivers are required to support future demand and to improve the vacancy rate and asking rental growth.
“These drivers include growth in capital investment, employment and renewed business optimism in a changing political landscape.”
FNB economist, Matlhodi Matsei, said data on residential property valuers’ assessments showed that the market strength index was deteriorating in the Western Cape.
“This implies an increase in the supply of residential housing against the backdrop of weakening demand,” Matsei said, adding that this was applicable to the broader province and was not a direct measure for the