SAPOA: Current office developments 85% pre-let
Category Services
The overall office vacancy rate at the end of Q3 2024 was 13.6% - down 60 basis points from the previous quarter and the 9th consecutive quarter of improvement, according to the SAPOA's Office Vacancy Survey for Q3 2024.
The improvement was coupled with another quarter of positive year-over-year growth in asking rentals. During Q3 2024, the overall office asking rental increased by 2%, measured against the prior year's comparative period.
While this is still well below inflation, it may signal that demand is currently closer to supply than it has been since pre-Covid-19. This trend was also aided by muted development activity which could help to stabilize the market at a new equilibrium.
Q3 2024 also witnessed improved quarter-on-quarter vacancy rates for all grades of office space. A-grade offices saw the largest improvement of 80 basis points while Prime offices experienced the largest year-over-year improvement as its vacancy rate decreased 200 basis points to 7.5%.
The City of Johannesburg's office vacancy rate of 16.3% registered as the highest during the quarter, albeit an improvement from the 19.5% recorded in Q2 2022 but significantly higher than the 12.5% vacancy rate at the end of 2019. The City of Cape Town has the lowest overall office vacancy rate of 6.7% after another 60-basis point improvement which brought its office vacancy rate to its lowest level since Q3 2008.
Office development activity remains limited due to the persistently high vacancy rates, attractive rental prices for existing properties, and the prevalence of sublets. Another signal of increased caution amongst developers is the high pre-let rate of developments. Current developments are 85% pre-let - the highest rate observed in the 34-year history of the survey.
In September 2024, more than 70% of vacant office area was accounted for by office buildings which are at least 30% vacant. The prevalence of troubled assets could weigh on a node's overall rental growth if the owners of troubled assets entice tenants with attractive incentives and lower rentals.
Author: Propertywheel
