Contracting demand explains sticky office-vacancy rates

28-04-2011

The take-up of office space remains feeble for now, explaining why vacancy rates are still stubbornly refusing to drop.

Table 1 show that, as at the fourth quarter of 2010, the net annual take-up of office space across all of the major decentralized office regions was still negative. Net annual take is the change in occupied space measured over a year. This metric is of course not influenced by changes in the stock of space, which might be inflated by a building splurge. Interestingly, when measured on a quarterly basis, net take-up in Johannesburg and Cape Town decentralized was positive, while in Pretoria and Durban decentralized it remained negative (i.e. demand contracted). This partially explains why in the fourth quarter of 2010, vacancy rates in Durban and Pretoria decentralized continued to tick up. In Johannesburg and Cape Town decentralized, however, they managed to at least stay at their previous-quarter levels.

Nonetheless, the graph that follows illustrates that − on a national, decentralized basis − demand for office space is still contracting compared to a year earlier, albeit at a decelerating pace. Extrapolating the trend leads one to the conclusion that we are going to see some (hesitant) growth in demand this year.

Considering that there is little new supply in the pipeline, one has to conclude that the prospects for hesitantly declining vacancies later this year seem good.