Growthpoint Properties has published an investor update for the three months ending September 2021, with the group reporting that many of its office tenants are planning a more permanent return to the office from January 2022.
However, these businesses have indicated that a hybrid-working model is set to be kept in place for employees – with staff likely only coming into the office on some days.
“They are contemplating a hybrid working model with flexibility for staff to work from the office three days a week and from home on other days. We foresee office layouts being modified for collaborative working and hot-desking, reducing the space tenants require,” Growthpoint said.
“This could be countered by social distancing requirements, more meeting rooms and introducing spaces facilitating virtual interaction. We also expect parking requirements to reduce as not all staff will be in the building simultaneously.”
Growthpoint Properties is the largest South African primary REIT listed on the JSE and manages a diversified portfolio of over 500 property assets, locally and internationally including the Victoria and Alfred (V&A) Waterfront.
Increased vacancies
Growthpoint said that the effect of the pandemic and the impact on the economy means that smaller tenants cannot afford their space and need to downsize. Others are reluctant to commit to long-term leases as they are uncertain about their future space requirements or cash flows.
As a result, key metrics for the office sector remain under pressure, particularly in Gauteng and in Sandton specifically. The group’s office sector vacancies have increased from 19.9% at FY21 to 20.9%.
“Our most significant concentration of offices is in Sandton, where 21.4% of our office gross lettable area (GLA) is located and where our Gauteng vacancies are concentrated at 94,000m² or 26% of total office vacancies. The Gauteng region is under significantly more pressure than KwaZulu-Natal (KZN) and the Western Cape, where vacancies are concentrated in a few buildings.
“Non-renewals added 33,592m² of vacant space with 27,359m² of new letting in the period. As a result of liquidations and evictions, leases were terminated for 9,621m² of space.”
Growthpoint said that offices achieved a renewal success rate of 56.6%, with the average lease renewal term decreasing to 2.8 years from 4.4 years at FY21 as tenants remain reluctant to commit amid uncertainty.
It added that the oversupply of space in the market puts pressure on occupancy levels and rental renewal growth. Rental growth on renewals has decreased for the last six years and continues to face downward pressure. It deteriorated further, from -16.1% at FY21 to -18.7% at the end of the quarter.
“On a more positive note, requests for relief from tenants have slowed dramatically and we are receiving increased enquiries from larger tenants who are taking the opportunity to improve the quality of their space, at similar or lower rentals.
“We have concluded leases for over 8,500 m² in the Western Cape and 2,000m² in KZN, which start later in the financial year as well as deals for large space in the Rosebank, Illovo and Bryanston nodes.”
