Currently the demand in the commercial property rental market in Gauteng seems to be fairly lacklustre and on a whole this situation is set to continue for quite some time. This is the opinion of Rodney Luntz, MD of High Street Property Co.
"Despite what seems to be a fairly negative outlook, there are pockets of areas in northern Johannesburg where the demand for office space has in fact increased over the past twelve months and subsequently this equates to lower vacancy rates in those particular areas. Recent examples are Illovo where A-grade vacancy has decreased from 2.9% to 1.2% for the period June 2010 to June 2011. We have also seen a decrease in A grade vacancies in Rivonia, Melrose, Rosebank, Sunninghill and Woodmead," says Luntz.
"Through interaction with both landlords and tenants we have tracked these trends and seen that these areas tend to be prime nodes and tenants are taking advantage of the soft market to move into these areas at reduced rentals," he continues.
In comparison, Sandton, however, has experienced an increase in A grade vacancies for the same period from 7.7% to 8.4%. "This is going to be exacerbated with the ongoing development currently taking place and planned for the Sandton CBD. Research shows that there are over 30 development applications currently in for approval. Given the state of the current market, this is a risky approach; however, with increasing holding costs, developers can't wait forever. If developments do go up on speculation, this will clearly increase the vacancies in the area drastically.
Increase in vacancies puts pressure on rentals
Similarly, Rosebank is also of concern. Currently it does look better than Sandton with a slight take up of vacancies. Vacancies in June 2010 for A grade buildings were 17.9%, in comparison to June 2011 vacancies which were at 16.6%.
"With increased vacancies comes pressure on rentals. Despite the situation, there has been robust rental growth in certain select areas such as Sandton CBD at 11%, Parktown at 10%, Bryanston at 7%, Illovo at 4% and Rivonia at 2%. When looking at each area in more depth, trends show that whilst Sandton vacancies went up slightly, the rental growth increased. Normally this would seem to be an anomaly, but in this market it demonstrates the attractiveness of Sandton as an office node and the fact that tenants who want to be in the area are prepared to pay," Luntz says.
The node of Parktown also showed an increase in vacancies of 1.1%, but rentals grew at 10%. Feedback on this indicates that this is due to rentals in Parktown coming off a very low base. Bryanston's vacancies decreased by 1.4% to 7.2% which translated into rental growth of 7%.
Rosebank showed a decline in rental growth at -2%, notwithstanding that it had a decline in vacancies. As with the situation in Rivonia, such a high vacancy level will cap any increase in rentals and as in Rosebank's case even force rentals to go into minus territory.