Decentralized office rentals still underperforming

08-03-2005

Rentals in decentralized office nodes are still under-performing in real terms, according to the office rental survey figures for the last quarter of 2004, featured in Rode's Report 2005:1.

Rentals for grade-A space in decentralised nodes continued to hover around the R60/m² mark, while nominal CBD rentals grew at a year-on-year rate of 7% to around R45/m². Rode's Report editor Garth Johnson says when deflating (inflation adjusting) nominal (or money) rentals by building costs, which are growing at about 13,5%, it is clear that real office rentals are still dropping.

He explains that when real rentals are falling, it means that one can presently build less with the rental income from a building than one could in the previous period, even though you may be receiving more income in money terms.

Over the same period, Sapoa's vacancy survey reveals a strong uptake of vacant prime-quality (grades A and B) office space in decentralized nodes — a factor that will eventually put upward pressure on real rentals.

Prime-quality office vacancies in Johannesburg decentralized, for example, declined from 14,4% at the beginning of 2004 to 12,0% at the end of the year. Johnson says this gain of about 2,4 percentage points constitutes about 125.000m² of office space, or more a less two Carlton Centre office blocks. Over the same period the collective vacancies in Pretoria decentralized and Cape Town decentralized also fell by about 2,5 percentage points to 3,0% and 7,2% respectively. Durban decentralized was the weakest performer over the last 12 months, with vacancies dropping only by 0,8 percentage points.

The national decentralized vacancy rate dropped by about 2,3 percentage points to 9,6%, implying a take-up of about 175.000m² or just under 2½ Carlton Centre office blocks.