Office landlords take desperate measures to find tenants
Office landlords are taking desperate measures to attract tenants as they struggle with vacancies and office demand.
Some multinationals have moved into new premium (P-grade) offices and left older A-and B-grade offices vacant.
Owners of these offices are struggling to find tenants that can occupy these buildings. When they do, tenants have been unwilling to pay rentals similar to those they vacated.
The national office vacancy rate was 11.1% at the end of the second quarter of 2018, which is the lowest level recorded since the first quarter of 2017.
For the 32 quarters from the fourth quarter of 2010 to then, there were only six quarters that showed an improving office vacancy rate.
The head of listed property funds at Stanlib, Keillen Ndlovu, said problems had persisted for the office sector.
"The office market remains challenging largely because of a number of dynamics; weak economic growth leading to little or no demand and oversupply. There have been so many buildings coming up over the last year to two years. For example, the Sandton CBD skyline is looking crowded," he said.
Corporations were consolidating space into a single and large office and vacating a number of smaller and older offices, as was the case for Sasol and Discovery. Ndlovu said that companies also required less space per employee. The office market would only gain momentum again if there was less speculative supply and good GDP growth of 3%-4%.
Panico Theocharides, a director at property advisory Tenurey BSM, said developers had not expected the economy to perform so poorly over the past few years.
"It’s cyclical. The fact is there has been a lot of commercial development and this development activity has run ahead of economic growth, resulting in fairly large amounts of oversupply of office space," he said.
"The competition to retain and attract tenants is seriously aggressive because listed funds simply cannot afford to have vacancies. I have seen companies starting to negotiate with tenants 18 months prior to expiry of lease for renewals, as they know other competitors will start talking to their tenant that early," Theocharides said.