Landlords lose R2.8 billion from Joburg office vacancies

Johannesburg has the highest office vacancy rates in South Africa, with a vacancy rate of 18.7%, which costs landlords R2.8 billion in rental income per annum.

This was revealed in the South African Property Owners Association’s (Sapoa) Office Vacancy Report for the second quarter of 2023. 

Office vacancies across the country were 15.6% a the end of June, with over 3 million square metres of empty office space. 

This is a sharp increase from 2019, when only 2.1 million square meters of office space were vacant at a rate of 11%. 

Office landlords have been pressured to lower rent to attract more tenants. On an inflation-adjusted basis, the average gross asking rental of available space is now at the same levels as in 1999. 

Sapoa warned that rentals would continue to trend down and said that vacancy improvements are at the expense of landlords’ income. 

Johannesburg’s office vacancy rate reduced marginally from 20% during the same period last year but is significantly higher than the 12.5% recorded at the end of 2019.

With a vacancy rate of 18.7%, Sapoa estimates that landlords are losing out on potential rental income of R2.8 billion per annum in Johannesburg alone. 

Within Johannesburg, the CBD has the highest vacancy rate of 25.5%, while the economic hub of Sandton has a vacancy rate of 19.5%. 

On the other end of the spectrum, Cape Town recorded the lowest office vacancy rate of 8.7% at the end of June, the lowest rate since the end of Covid. 

Property sector strategist at FNB, John Loos, told The Money Show that activity is slowing throughout the property sector, with offices getting hit the hardest. 

Loos attributed the lacklustre demand for office space to the sharp increase in interest rates from the Reserve Bank, which has increased the cost of buying property and affected the financial health of tenants. 

Office vacancies are decreasing, but Loos expects vacancy rates to stay high and possibly increase if high-interest rates persist for longer than expected. 

Work-from-home and hybrid work models have affected property demand as white-collar workers are unwilling to return to the office full-time, resulting in companies needing less office space. 

South Africa’s poor economic performance also plays a role, increasing office vacancies as companies look to reduce headcount or rental costs. 

Loos expects a normal uptick in office vacancy rates and increased pressure on office landlords in the near term due to the country’s poor economic performance. 

Despite this, he expects property owners across the board to invest more money in their properties to improve their offerings through backup water and power solutions and additional amenities.