Cape Town's office property market is flourishing, according to the latest Rode Report on the South African property market for the fourth quarter of 2023.
Property economists, Rode & Associates highlight Cape Town as the leading office market in the country, outperforming other major cities.
The office market in South Africa a whole, had a better 2023 but remains in the worst position of the three major non-residential property types.
Encouragingly, vacancies improved in 2023, while the nominal market rental data surveyed by Rode indicates a continued recovery from the low Covid levels. Rentals in real terms continue to look bleak.
Rode found that the average vacancy rate of grades A+, A and B space combined in decentralised nodes in South Africa was 14,4% in the fourth quarter of 2023, better than the 15,2% average in the fourth quarter of 2022.
Since 2022, Cape Town has been the clear standout of the four major cities. Here nominal decentralised grade-A gross rentals rose by 6% year on year in the fourth quarter of 2023, ending the year 5% higher than pre-Covid levels.
For the full 2023, market rentals rose by 10%, thereby outpacing building-cost inflation (BER BCI) – the only major city to do so.
Nominal rental growth in the decentralised nodes of Johannesburg, Durban and Pretoria averaged between 0% and 2% in the fourth quarter of 2023 − all below building-cost inflation.
Kobus Lamprecht, head of research at Rode & Associates, attributes Cape Town's success to several factors, including the return of workers to office spaces and the city's favourable power-supply situation.
In conversation with Moneyweb, Lamprecht noted that companies are increasingly expanding or establishing offices in Cape Town due to its reliable power supply, growth in tourism, and semigration trends driven by good governance in the metro.
The report indicates a significant rental growth of approximately 10% in Cape Town's office market, surpassing the national average and inflation rates.
Lamprecht said that after experiencing an 11% decline in rentals during the pandemic, Cape Town's office market witnessed a strong recovery in 2022 and 2023.
By the end of 2023, rentals were 6% higher than pre-pandemic levels, reflecting the city's resilience and attractiveness to businesses.
Comparatively, other major cities like Johannesburg, Pretoria, and Durban saw nominal rental growth in the low single digits or even experienced declines.
Lamprecht highlighted Johannesburg's office market, where decentralised rentals increased by only 1% in 2023, signaling ongoing pressure in the market with a 16% average vacancy rate.
In contrast, Cape Town's office nodes such as the V&A Waterfront, Century City, and Claremont have demonstrated remarkable improvements, with rental growth exceeding inflation rates.
Lamprecht pointed out that vacancies in prominent nodes like Claremont and Century City have dropped from close to 20% during the pandemic to around 10%, indicating increased demand for office space in Cape Town.
Semigration further contributes to the city's office market growth. Lamprecht acknowledges the impact of semigration on office demand and highlights the Western Cape's appeal to investors.
Looking ahead, Lamprecht predicts continued growth for Cape Town's office market, provided that the city maintains its favorable governance and power-supply conditions.
With the potential for Cape Town to become the highest-grossing property rentals market in the office sector, investors are advised to consider the city's promising prospects for long-term investment opportunities.
Gauteng resurgence in 2024
While Cape Town has garnered attention for its swift post-COVID recovery in the commercial real estate sector, Gauteng, often regarded as the nation's economic powerhouse, is seeing a robust performance that surpasses expectations.
Scott Thorburn, National Asset Manager at Redefine Properties, highlights positive trends in Gauteng's office property market, indicating a promising outlook for the province.
Thorburn noted a significant reduction in occupancies and a simultaneous rise in rentals across quality buildings in various nodes of Gauteng.
Many sought-after office buildings, previously not fully leased before the pandemic, are now either fully occupied or experiencing minimal vacancies, signaling gradual rental growth.
Despite global trends towards remote work, there has been a notable increase in businesses returning to physical workplaces in South Africa.
This trend contributes to a high volume of deals, albeit smaller in scale, particularly in key nodes such as Bryanston, Sandton, Rosebank, and Midrand, where vacancies in Redefine's portfolio are currently lower than pre-COVID levels.
Demand for quality office spaces in prime locations with easy access to amenities is driving tenant preferences. Companies prioritise creating comfortable work environments that attract employees back to the office, even as they occupy smaller spaces.
Renovations of lower-grade properties into premium assets are underway to meet this demand, further reducing overall vacancy rates in Gauteng's office sector.
The decrease in vacancies and the rise in occupancies bode well for rental growth and property valuations in Gauteng, said Thorburn.
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