Gauteng’s office market could take up to five years to recover, say experts — but markets in Cape Town and Durban are in better shape.
The office market has been battered by remote working and high vacancies due to a weak economy and oversupply dating from before the pandemic.
Growthpoint Properties, South Africa’s largest listed property company, said its office vacancy rate had hit 21.2%, but appeared to be levelling off with more tenants returning.
Estienne de Klerk, CEO for Growthpoint Properties in SA, said the group’s office portfolios in Cape Town and Durban are showing significant signs of recovery and vacancy rates for both metros should drop below 10% within six months. A vacancy rate of 8%-10% is considered normal.
De Klerk said Gauteng had experienced greater speculative development activity than Cape Town or Durban, which had contributed to the oversupply problem.
Johannesburg has also been hit by a“huge amount of backfill space” created by tenants seeking new head office premises in 2018 and 2019. Backfill space refers to premises left behind, which property owners often struggle to fill.
Historically Cape Town and Durban did not host the main head offices of many large companies and were much smaller markets, making it easier for vacant space to be mopped up.
Migration of people from Gauteng to Durban and Cape Town is driving economic activity there. Several GDP studies in recent years indicated that these cities were growing more than those in Gauteng.
In Gauteng many small businesses fail because of the Covid restrictions, while “ghost vacancies” had been created by large companies sub-letting their existing space to others, effectively competing with their own landlords in the market for tenants, he said.
These trends are also reflected in the South African Property Owners Association’s latest office vacancy survey.