Johannesburg decentralized impresses

11-06-2008

While the South African economy may be taking strain on all fronts, a ray of hope can be seen in office rentals in the decentralized regions of Johannesburg, which have continued to fare well, according to property economists Rode & Associates.

Says Erwin Rode: “These regions seem to be leading the way into what is still being anticipated as an upswing in the office property cycle.” In the final quarter of 2007, numerous office nodes in Johannesburg decentralized recorded double-digit growth rates in excess of building-cost inflation. In the order of highest to lowest, these included Rosebank (+29%); Randburg Ferndale (+26%); Sandton CBD (+24%); Rivonia (+22%); Bryanston (+19%) and Parktown (+18%).

Rode & Associates has revealed that its as yet unpublished rental data for the first quarter of 2008 already shows continued robust rental growth for Johannesburg decentralized. “What’s more,” says Rode “in most of these nodes, market rental levels are still below what’s required to make a new office development viable to developers.”

The reason for this, explains Rode, is that for many years the growth in replacement costs (building costs plus the cost of land) had outpaced market-rental growth. “Now, in the face of negligible vacancy rates, tenants are left with no option but to sign at rates that are closing the gap with rental levels that make new developments viable,” says Rode.