The latest SAPOA Office Report shows continued improvement in office vacancy rates in South Africa.
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South Africa’s office vacancy rate improved once again to 14.2% at the end of the second quarter of 2024, down 50 basis points from the previous quarter and the eighth consecutive quarter of improving vacancy rates and a rebound in rental growth.
The South African Property Owners Association (SAPOA) office vacancy survey included 2,703 completed office properties and 10 active developments across 54 nodes, covering 19.2 million square meters of gross lettable area, which includes developments currently under construction.
At the cost of rental growth
The improving vacancy rate has come at the cost of rental growth, which has declined year-over-year since 2019. However, the most recent quarter saw a rebound.
The overall office asking rental increased by 0.8% in the second quarter, returning to positive territory. Although still below inflation, this may signal that demand is closer to supply levels not seen since before the pandemic.
Muted development activity has helped stabilise the market at a new equilibrium.
The high pre-let rate of developments, currently at 85%, reflects increased caution among developers and is the highest rate observed in the 34-year history of the survey.
Prime, A, and B-grade offices saw improved vacancy rates in the second quarter, with Prime offices experiencing the largest improvement, decreasing 160bps to a vacancy rate of 7.8%.
In contrast, lower-quality C-grade offices saw a slight deterioration of 30bps over the most recent quarter. Over the past year, all grades, including secondary offices, have shown improvements in vacancy rates. 2
The City of Johannesburg’s office vacancy rate was the highest at 16.9% in Q2 2024, improved from 19.5% in Q2 2022 but still significantly higher than the 12.5% vacancy rate at the end of 2019.
The City of Cape Town recorded the lowest overall office vacancy rate at 6.3%, after a 50bps improvement during the latest quarter, reaching its lowest level since 2009.
Office development activity across the nodes covered by the SAPOA office vacancy survey was 132,000 sqm in the latest quarter, down from above 150,000 sqm since the start of the year and well below the long-term average of over 500,000 sqm of active development.
More than 70% of the vacant office area in June 2024 was in buildings that are at least 30% vacant, with the bulk classified as A and B-grade.
Troubled assets
Troubled assets could impact overall rental growth negatively if owners offer attractive incentives and lower rentals to entice tenants. At Q2 2024, Sandton, Johannesburg CBD, Rivonia, and Durban CBD were among the nodes with the highest number of troubled assets.
An analysis of vacancy rates within the Sandton office node revealed significant disparities. The historic core of Sandton had a vacancy rate of over 34%, while the new core, with newly built stock, had a significantly lower vacancy rate of 9.3%.
The cautious approach by developers, reflected in the high pre-let rates, and the stabilisation of the market at a new equilibrium are positive indicators for the future. However, the prevalence of troubled assets and regional disparities in vacancy rates remain challenges that need to be addressed.
