Despite a tumultuous year, the battered Office Market is showing signs of recovery. There is no guarantee that this will continue. Factors such as loadshedding have been somewhat curbing work-from-home efforts. However, the high petrol price influences employees to avoid a daily commute. In the long term, businesses are noticing the necessity for increased face-to-face collaboration, which is urging more employees back into the office, particularly in larger corporates.
Despite a sluggish economy that has failed to meet the growth forecast of 3.5%, we are cautiously optimistic about potential progress in various segments. The Prime Grade segment has outshone the flat performance of the A and B-Grade segment in recent months.
SUPPLY AND DEMAND
A surplus of offices in nodes, such as Sandton, exacerbated by the pandemic, means that development has been largely stunted. This is expected to continue to an extent in the next few years. In terms of Joburg’s vacancy rates, B-Grade buildings are struggling the most at a staggering 37.6%, with the A-Grade segment at 25% and P-Grade segment at 11%.
Sub-let space has risen in popularity because of the value it provides in terms of furniture and fit-out. Meaning there is more pressure on landlords, who now compete are having to compete. Either with their own tenants or sub-leasers who were not in the market previously.
Although the market seems down, tenants are spoilt for choice and there are some new office trends. Tenants want to cater for the wellbeing of their employees, sustainability and have access to outdoor facilities. P-Grade buildings are able to fulfil these requirements and are therefore outperforming the rest with specs like high-quality finishes, environmental initiatives, flagship architecture and minimum 4-star green ratings. Such buildings can achieve gross rental levels of up to R205/sqm.
UPGRADE TO BUILDINGS
In order to attract new tenants, landlords with A- and B-Grade buildings are considering upgrades to their portfolio. Although a costly exercise, this is proving necessary if landlords want to avoid selling to owner occupiers or residential developers.
Recently, listed property fund Redefine, showcased its commitment to future-proof segments of its portfolio by upgrading the ex-Ericsson building into the new and improved Magnolia Close in Woodmead. With a welcoming atrium, Redefine aims to offer tenants an array of informal, open areas for meet and greet opportunities. In a great location with attractive views, stunning gardens, a coffee bar and mix of meeting rooms with Smart TVs and whiteboards, this offering provides that extra touch that brings balance to the hustle and bustle of the office environment.
RESET TO RESI
The highly competitive nature of the market has left the older B- and C-Grade buildings (previously positioned as good value) standing vacant with no prospects. Residential developers are showing a keen interest in converting well-located buildings in this category. Viable for properties of 5 000 sqm and above, this approach has been implemented successfully with the prominent ex-PWC head office. Delta Property Fund and Fortress have slashed a significant 35 000 sqm of office space from their Sunninghill portfolios using this tactic.
WHERE TO FROM HERE?
As a result of new hybrid trends, traditional office space is definitely changing. Businesses are rethinking, reshaping, and rebuilding their workspaces to evolve with the way their employees are choosing to work. We are seeing de-centralised nodes increasing in popularity. Bryanston, Waterfall and Rosebank are in high demand due to their eclectic mix of residential, retail and business activity.
As part of the shift to decentralised office space, businesses are equally considering semi-serviced space.
Recently Growthpoint Properties launched their WorkAgility offering. This is an agile, ready-to-occupy office concept. Securing an office will be through an online booking system similar to a hotel or Airbnb.
“The business environment and office market have shifted, and with WorkAgility Growthpoint is responding to the new needs of a significant portion of office tenants. We have listened to our clients, and we are doing things differently to adapt our offices to the new world of hybrid working,” says Timothy Irvine, Growthpoint Regional Asset Manager, who is driving WorkAgility.
Looking ahead, we believe that the market will continue a steady upward trajectory with market activity increasing slowly in the next few years until pre-COVID benchmarks are reached. Tenants will likely continue to be spoilt for choice for the near future, giving them bargaining power and flexibility.
Reach out to Paula for information on office leasing and sales.
PAULA HARDY
Director, PH Real Estate
C: 082 885 4502
E: paula@phrealestate.co.za
(Sources: SAPOA Office vacancy survey/Rode Report)