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Johannesburg - Empty office space in Sandton has nearly doubled over the past 12 months, which could see many landlords slash their rentals when leases come up for renewal in 2010.
Latest figures from the SA Property Owners Association (Sapoa) showed that the office vacancy in Sandton, South Africa's biggest office node after the old Johannesburg CBD, surged to 9.5% in 2009's fourth quarter.
That was up from 6.1% in third-quarter 2009 and nearly double the vacancy level of 5.7% recorded by Sapoa a year earlier.
A similar trend was noticeable in many of Johannesburg's other prime business hubs. Vacancies in Rosebank rose from 3.1% to 5.2% on a quarterly basis. In Fourways, Sunninghill, Melrose/Waverley, Hyde Park/Dunkeld and Cresta/Blackheath empty office space increased more than fourfold over the 12-month period.
The survey also showed vacancies were on the rise in some areas of Cape Town, Durban and Pretoria - but not to the same extent as in Johannesburg.
Property analysts said the growing amount of office space to let, particularly in Sandton and Rosebank, is partly due to speculative developments recently coming onstream near the Gautrain stations. However, it is also a telling reflection of how cash-strapped corporate SA has been forced to cut costs.
Tenants could score on lower rentals
Anton de Goede, property analyst at Coronation Fund Managers, said there is no doubt that office tenants, especially smaller businesses in multi-tenanted buildings, have been downsizing in a bid to save on monthly overhead expenses.
De Goede said it is likely that office vacancies will continue to climb over the next six to nine months, as it will take time before positive gross domestic product growth filters through to commercial property demand.
He noted landlords may find it increasingly difficult to push through rental increases on lease renewals, given that rising electricity costs and higher rates and taxes alone should lead to a noticeable jump in occupation costs.
Said De Goede: "Higher electricity costs may stifle the willingness of tenants to accept higher reversion rates, and even be the final catalyst for tenant failures."
Although rising vacancies are bad news for landlords - especially listed property funds which own a large chunk of the office stock in South Africa's prime business nodes - it is the reverse for tenants as it creates room to negotiate more favourable rental levels.
De Goede said many office landlords may have no choice but to lower their asking rentals in 2010 in a bid to fill empty buildings.
- Fin24.com