Some would say that we build for tomorrow not for today. For some time now Cape Town CBD has seen few new construction projects and given the latest office vacancy, figures that may be just as well.
Looking at the latest SA Property Owners Association (SAPOA) office vacancy survey for 2011 Capet Town’s six out of seven nodes face a trend of growing vacancies for the previous quarter. The survey shows the amount of vacant space is also rising in most decentralised office markets.
For combined Premier A and B grade offices:
Cape Town CBD is at 10.5% up from 9.7%.
In the Southern Suburbs: Claremont is at 13.7%; Rondebosch & Newlands 7.3%.
In Tygerberg, the Bellville vacancy average is 9.4% whereas a year ago it was 6%.
Office vacancy around the broader V&A Waterfront precinct is at 6.9 per cent.
Pinelands is at around 3.4%. Century City however has dropped over the previous year to 8.8% from 10.5%.
Here development activity has increased dramatically, with works on the Estuaries 2, Park Lane and the Bridgeways Precinct currently in progress.
There is some evidence that tenants have attempted to reduce their rental bill by securing cheaper space. This may have played a role in underpinning the demand for affordable CBD space.
Looking at smaller business owners, it may be that many people have gone back home to set up office in the garage – back to cottage-work environments away from the big city.
The point that vacancy rates are growing in Cape Town should not come as a shock. While weakening economic circumstances reduce the demand for space and increase vacancy rates, it is equally important to consider the effect that lagging development activity has on the market. Vacancy rates rise and fall because development activity is often poorly co-ordinated with demand.
Of course an obvious down side for property owners is that a rise in vacancy rates also has the potential to increase operating costs. In an environment of rising vacancy rates, property owners have little choice but to absorb operating costs that would normally be passed on to tenants. This issue has become particularly pertinent to South African property owners in general who have experienced a significant rise in electricity costs which would normally be passed on to tenants.
But the are some people that are looking ahead at the future of space in Cape Town with a steady confidence in the long term office market. In the Clock Tower precinct for example, Allan Gray is making its presence felt with a confidence inspiring project.
The new Allan Gray building is a R1 billion mixed use complex and claims to be one of Cape Town’s first Green buildings. The development is the biggest at the V&A Waterfront since the state-owned Public Investment Corporation (PIC) and Growthpoint Properties bought the iconic landmark for R9.7bn earlier in 2011.
Another office development worth mentioning is the new Portside building which will be the provincial headquarters of FirstRand’s three principle divisions: FNB, Wesbank and RMB. There will also be an additional 25 000m² of prime space up for grabs for leasing to corporate and retail tenants. The project on the corner of Buitengracht Street and Hans Strijdom Avenue is a partnership between First Rand and Old Mutual, it should see completion by 2014. This bodes well for the precinct buoying up confidence in the area.
Other projects in Cape Town in the near future would include the new 20 storey building on Bree Street that will host legal offices and present more office space to fill. Currently underway is the 18 storey The Mirage hotel and mixed use development that should be complete by 2013. Cape Town International Convention Centre, which includes new convention space, office space, apartments, as well as a hospital is also on the cards. By the time these projects mature the hope is that the world will be a friendlier place for landlords.
Worth noting is that there are also some up sides to the economic downturn effects. The vacancy trend has created some opportunities for tenants. Some companies have felt the confidence to shelve elaborate expansion plans and others who were facing relocation now have negotiating space. Landlords are far more willing to exercise a little creativity, offering concessions and making opportunities available that would not otherwise have been available in a low vacancy market.
So as long as Cape Town keeps its head down building for tomorrow’s prospective tenants and looking after the one’s it currently has, it should be able to weather this storm.