Johannesburg’s office market continues to fall behind Cape Town due to a lack of economic growth, increased semigration, and rising administered costs for deteriorating service delivery.
Growthpoint highlighted this trend in their annual results for the year ended June 2023, with CEO Norbert Sasse saying the company could not keep up with demand for Cape Town properties.
Sasse said demand was driven by Independent Power Producers moving to Cape Town to develop head offices for their operations in South Africa.
“Cape Town has run out of office space. This is being driven by a combination of international businesses setting up offices in the Western Cape and semigration,” Sasse said.
The Western Cape government has previously said it was planning for about 500,000 people to move to the province in the short to medium term, indicating the scale of semigration.
On the other hand, Growthpoint’s Sandton portfolio continued to struggle with a high vacancy rate of 28% despite improvements in demand.
The company is heavily exposed to Gauteng as the province accounts for more than 70% of Growthpoint’s South African office portfolio.
Growthpoint wrote down the value of its Gauteng portfolio by almost 3% during the year, while its KwaZulu-Natal and Western Cape portfolios increased in value by more than 3%.
The company’s South African CEO, Estienne de Klerk, said Johannesburg still had a significant oversupply of offices.
This oversupply is compounded by the sharp increases in property rates in Gauteng and poor service delivery from local municipalities.
“The reality is you need economic growth. Growth at these pedestrian levels is making it a bit difficult, and Gauteng – no doubt – is disproportionately weak compared to the coastal areas,” said De Klerk.
He added that tenants could be driven back to Johannesburg as office space becomes increasingly expensive in Cape Town because of higher demand.
Investors pumping billions into Cape Town
Cape Town’s central business district (CBD) attracted R3.55 billion in property investment in 2022, including new developments and redevelopments, with the city benefitting from good governance and semigration.
This was revealed in the 11th edition of the State of Cape Town Central City Report for 2022, published by the City of Cape Town (CoCT) on Wednesday.
The city’s CBD recovered from the Covid-19 pandemic in 2022 as businesses returned to the city bowl.
However, in 2021, the city attracted R5.71 billion in property investments. This decline was attributed to rising interest rates and a stagnant national economy.
Chair of the Cape Town Central City Improvement District, Rob Kane, said that the prevailing economic environment in the country makes it difficult to do business. Despite this, the CBD continued to attract investment.
Kane said this trend would likely continue due to the city’s good governance, reduced load-shedding versus the rest of South Africa, and semigration from inland provinces.
He initially thought that semigration was a fad that would dissipate. However, he said Cape Town is experiencing real migration of skilled people from other parts of the country and digital nomads, who boost the city’s skills base.
“Businesses and people will continue to relocate to Cape Town because it offers an unrivalled lifestyle and is business-friendly,” said Kane.
The office sector in the central city was steady in 2022, with vacancies decreasing for top-tier A-grade space.
The return of businesses to the CBD led to higher rental prices for high-quality office space, with some rental prices exceeding R200 per square meter.
The CBD has the largest share of office space in Cape Town, at nearly 40%. It also has the second-largest share of premium office space, after Century City, with 29.8%.
The R3.55 billion invested includes projects under construction, completed, planned, and proposed, including 44 commercial, mixed-use and residential projects.