The office market in South Africa is facing significant challenges, but there are some signs of hope, particularly in Cape Town, which saw a 13% increase in rental prices compared to 2022.
According to the Q2 2023 issue of Rode’s Report on the South African Property Market, the country’s office market is struggling due to an oversupply of office space.
It reports some positive signs, as vacancy rates are improving and rental prices are still growing. However, real estate investment trusts (REITs) are reporting negative office rental reversions, meaning the rental prices are not increasing as much as the contractual rentals.
According to the report, the future of the office market is uncertain due to a poor economic outlook and the remote working trend.
However, there is a shift happening towards more people returning to the office, although hybrid working policies, like working in the office for three days, are still popular.
This means that the demand for office space remains lower than before the Covid-19 pandemic.
On a national level, rental prices for high-quality office space increased nominally by 3.5% in the second quarter of 2023 compared to the same period in 2022.
According to the report, this shows that rental prices have stopped falling sharply like they did during the pandemic.
However, the current rental prices are still 3% lower than in 2019, before the pandemic, when adjusted for inflation.
In addition, the real change (nominal values deflated by BER Building Cost Index) in rental prices for A-grade decentralized office rentals in Q2 2023 is -5.8%.
Cape Town has performed the best in terms of rental growth, with a 13% increase in rental prices compared to a year ago.
Pretoria and Johannesburg also saw some rental growth, but it was lower. Durban, on the other hand, experienced a decline in rental prices.
The average vacancy rate for high-quality office space combined was 14.5% in Q2 2023, which is slightly lower than the previous quarter.
This improvement is mainly due to less vacant space in Cape Town and, to a lesser extent, Johannesburg.
A-grade decentralized office rentals on a regional level saw some dramatic changes in nominal and real prices in Q2 2023.
Regarding nominal changes, Tyger Valley saw the largest increase in rental prices, jumping 21.2% from four quarters earlier. This number translates to an impressive 10.4% in real terms.
Century City, Cape Town, also saw significant growth of 10.9% in nominal terms and 0.9% in real terms.
Centurion in Gauteng also saw significant rental price improvement, growing 12.7% in nominal terms and 2.6% in real terms.
The worst-performing region was Berea in KwaZulu-Natal, where office rental prices shrunk by 9.9% in nominal terms and 18.0% in real terms.
Below are the office and industrial rental price performance as at the second quarter of 2023, expressed as a percentage change from four quarters earlier.
|A-grade decentralized office rentals||Nominal change||Real change*|
|La Lucia/Unhlanga Ridge||1.9%||-7.3%|