Sandton Office Space for Africa

Sandton has long been known as the South African hub of business (local and international) within the Johannesburg area. Not only that, but it is also looked at as the trendiest place to be seen shopping, eating, and just generally being fabulous. It is a sought-after area to live in, and seemingly only the best of the best get in. Why then is the Sandton Office Space struggling with rental properties?

A recent Vacancy Report by the South African Property Owners Association (SAPOA) showed that the national office vacancy rate was 11.3% for Quarter 2 of 2014, ending in the month of June. 30% of office development throughout the country is currently taking place in Sandton, which may come as a shock to some. Who knew it was possible to cram even more into this space?! Public transport, we hope you’re paying attention.

The SAPOA report also stated that currently unlet property adds up to 83000 square meters nationwide – a full 4000 square meters more than at the end of 2012. Unfortunately, Sandton is the main culprit behind the bulk of this increase in open space. Maybe they should consider not using it as office space at all – everyone loves a good Neighbourgoods vibe.

Regional broker manager for JHI Properties, Peter Collins, says that because South Africa supports Sandton as the financial hub of Southern Africa, the commercial property is currently able to remain steady. The growth in the office market, according to Collins, is still slow but at least it is steady. The slow growth rate is largely attributed to macro-economic factors such as the recent labour unrest (think mining industry and public transportation strikes – all the fun times), low GDP growth, and the downgrading of our investment ratings. All of these factors negatively affect business’ confidence levels in renting property space rather than buying at this point.

Because there is currently such an over-supply of office space in the Sandton area, landlords also have to consistently fight it out (can someone say “K.O!” Tekken style?) on competitive rental prices. The most competitive prices are obviously more appealing to larger tenants. Unfortunately, landlords do tend to be getting the short end of the stick. This is great news for the tenant though – more money for doughnuts during meetings!

Collins also mentioned that the average selling price of a prime piece of office space in the lovely Sandton area is currently going for a whopping R30000 per square meter.  Gross rentals, however, range from anywhere between R120-R160 per square meter of prime property. A-grade property in Sandton is currently at a 16% vacancy, meaning there is plenty of opportunity to snatch up a good deal in a beautiful area at a reasonable price – if you are willing to rent instead of buy.

What drives property demand?

Increasingly we are finding that people are looking for ‘greener’ spaces to live and work. Their inner hippie child is all about saving the planet, while still bringing home the bacon in the most environmentally conscious way possible.

The problem being encountered more and more with this over-suppy of Sandton office space also means that the growth rate of rentals is likely to grow extremely slowly in the next couple of years. Filling the current vacant properties will take priority over building and filling new office space.

Luckily, Sandton is still very much considered the financial hub and international springboard for companies who wish to get their foot in the door within the growing African and South African markets. Sandton is still in demand with international companies, even though locals may be hesitant to spend their money just yet.

Focusing on long-term productivity and efficiency, many of these international companies are now also merging with or acquiring local companies. They do this and move into a shared office space in the Sandton area, in a bid to be as efficient as possible.

Companies, whether international or local, are still looking more favourably at purchasing property than renting. This is not ideal for the office rental market, but ultimately many companies are happier with the investment value of purchase versus paying off someone else’s bond with a rental office space.