Will the real office vacancy figure please stand up?
08-08-2002
Recently, strong criticism from Old Mutual Properties to Rode's view on the state of the office market hit the headlines. Old Mutual Properties' Ian Watt wrote in a letter to Rode's Report that Rode's figures are far too optimistic. Rode again contends that Old Mutual is relying on seriously flawed data for their own calculations. In any event, contends Rode, the crucial indicator to track is not so much vacancies as take-up.
So what is the state of the office market, really? Rode's Report editor Dirk de Vynck sheds some light: Rode's conclusions on the strong take-up in the SA decentralized office market, as appeared in the office-demand chapter in Rode's Report 2002:1, are largely based on the data received from Sapoa's Office Vacancy Survey. The statistics from Sapoa's survey represent the only public data available in South Africa.
De Vynck says that Rode does not use the raw data as received from Sapoa to determine the office demand or changes in office demand (take-up).
"We have made adjustments to the office stock (total rentable area) as Sapoa sneaks in existing stock from time to time, thereby artificially boosting take-up. Also, seeing that Sapoa only covers A-grade and B-grade buildings, adjustments to the office stock have also been made to accommodate the regarding of buildings from B-grade to C-grade. Hence the Sapoa survey is seriously flawed and cannot be used 'voetstoots' to calculate demand."
"Of course we agree that vacancies are on the up, although Sapoa's vacancy data indicates that it is far from the 20% region being experienced by Old Mutual Properties. Rather, it is closer to about 13% (for grades A and B combined)."
"Here it must be pointed out that we regard net take-up (not the rearrangement of the Titanic's deck chairs) as the best indicator of a property market's inherent health."
"Vacancies are only the second best indicator. The reason for this is that (high) vacancies are so often the result of over enthusiastic developments by developers and banks rather than a lack of sustainable take-up as is now the case. And guess where overenthusiastic developments tend to take place? Why, in the successful nodes with high take-ups, of course. Thus we see the current oversupply situation in Johannesburg decentralized as a cyclical phenomenon, and expect the situation to normalize itself in about two years. This, of course, is also reliant on a slowdown in new office developments and sustained economic growth. According to the most recent StatsSA data, the completion of office buildings on the Witwatersrand in the first two months of 2002 fell quite substantially compared to the same period last year."
"Our latest office demand data (based on Sapoa vacancy survey data up to December 2001) shows a continuation of the healthy office take-up in Johannesburg decentralized, averaging about 85.600m² per quarter since the beginning of 2000. This is after adjustments for sneaked-in older stock."
"Comparing any rental or price level between countries after conversion to US dollars is risky and mostly irrelevant. A better measure for inter-country comparisons would be to express market rentals as a ratio of total operating expenses of a typical firm. These statistics are of course much harder to come by, so the publicity seeking overseas brokers, like the one quoted, rather take the easy, albeit invalid, route and the media fall for it every time."
"The "good" performance in Harare's US$ office rentals is misleading, because the Z$ to US$ exchange rate is artificially fixed at an unrealistic level. The country's economy has almost come to a standstill after the last few years' political mayhem, which has had a negative impact on the property market. In fact, Zimbabwe's rentals converted to US dollars are a good if extreme example of why this method of inter-country comparison is misleading."
"For local tenants and investors, an inter-nodal trend comparison in rand terms is required. This shows a definite cyclical deceleration in office rentals, although far from the negative growth seen in US$-based terms."
