Office Market in South Africa Why so Slow, and Where to in the Future?
By Dr Dirk A Prinsloo
A projected GDP growth of 4,3% for 2005 as indicated by the Minister of Finance, Mr Trevor Manual, should definitely boost the growth in the supply of office space. The GDP growth trend has been positive for the last 28 quarters, while the supply in the office market has been very stable since 2003. The growth in the GDP does not reflect a similar pattern for the demand for office space.
Is this a function of the over-supply that was created during the period 2001/2? The growth in the supply of the office market from 1993 to 2005 has been 3,2% per annum. At one stage this growth was as high as 7% per annum.
Vacancies levels peaked between 2002 and 2004, with the highest during 2003 at a total vacancy level of 15,7%.
The Johannesburg office market is outgrowing the other major office markets with an increase in total market share of A- and B-grade office space from almost 56% in 1993 to 63% at the moment.
The same trend is reflected in the demand for office space. Cape Town represents 12,9%, Tshwane 14,8% and Durban 9,4% of the total supply. The dominance of the Johannesburg office market is very clear.
The growth in the Johannesburg office supply over a 12-year period (1993-2005) has been 4,2%, Cape Town slowed down to 1,1%, Durban at 2,5% and Tshwane/Pretoria at 2,6% (changes mentioned at table).
The trend in the take-up rate is also reflected in the table indicating the long-term take-up rate in Johannesburg of ±210 000m² per annum, Cape Town at ±12 000m² – 15 000m², Durban at 12 000m² – 14 000m².
Worldwide office development is favouring the more affluent suburbs of a particular city. The office decentralisation trend in South African cities clearly followed this pattern. More than 90% of the total decentralised office space in Johannesburg is located along the northern axis, stretching from the CBD, through Rosebank and Sandton to Sunninghill/Fourways. This trend of office development was set as far back as 1980 with the first decentralised office space towards Braamfontein, Rosebank and Sandton City. Over the last 25 years this trend has established itself very strongly.
According to Map 2 it is clear that the only new office node outside the northern axis is the Bedfordview node with strong links towards the Johannesburg International Airport as well as some of the industrial areas to the east. The latest office node outside the north/south axis is the Constantia Basin, Hendrik Potgieter Drive and its extension. This node recently received a strong boost with the MTN Head Office located in the area. Both areas (Bedfordview and the Constantia Basin) are characterised by affluent households, either in Bedfordview, Constantia Kloof and further out towards Little Falls, Ruimsig and Featherbrook. This area will most probably see good office growth in future. Hoewever, other than the Constantia Basin area there is not one concentrated location yet.
See Maps 1 and 2- Johannesburg
The trend in Cape Town is focused more towards the revitalisation of the CBD area and development at the Foreshore, the Century City and Durbanville/Tyger Valley northern suburbs. The southern suburbs have lost some of its attraction for office development mainly because of traffic congestion and access to the area. Century City has clearly established itself as an attractive office node, catering for the entire Cape Town area.
See Maps 3 and 4 for Cape Town
The Pretoria/Tshwane area has been dominated by office growth in a south-easterly direction, scattered throughout the south-eastern suburbs with concentrations in the Hatfield and Brooklyn areas. The latest development, however, shows very strong growth in Centurion and the adjacent office area. For the first time in 20 years the link between Centurion, Midrand and Johannesburg has established itself as a very strong business corridor. The quality housing in the Centurion area as well as the very large residential growth that can be expected in this area will further strengthen office growth in this particular sector of the Pretoria/Tshwane market.
See Maps 5 and 6 for Pretoria
The growth in Durban is focusing on three areas namely adjacent to the CBD, the Umhlanga area and lesser growth in the middle suburbs of Pavilion and Westville. It is expected that these three areas will remain popular during the next 3-5 years.
See Maps 7 and 8 for Durban
One of the critical aspects regarding office development in Johannesburg is the need for an upgrade of older, decentralised office nodes. During the late 1990s the Rosebank node experienced serious problems. The entire area, however, has been revitalised and upgraded. Other older office nodes also show higher than average vacancy rates. These areas must seriously address problems of possible decay.
As far as the future growth of offices is these metropolitan areas are concerned, it is important to understand that there will always be sub-areas which will be more attractive for office development. These areas show very good growth, low vacancy figures, in spite of the slow moving office market.
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