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WITH office vacancies at record lows in SA, large users of space are increasingly having to have new office space built to meet expansion needs.

David Green, MD of office and industrial property brokers Pace Property Group, says this is especially the case in quality office areas where vacancies are 3% of total stock. Areas which are experiencing this trend include Sandton in Johannesburg, Cape Town’s central business district and Century City precinct. He says rentals for A-grade office space now exceed R100/m².

“The interesting trend in the South African market is that major office-space users are finding themselves in a position where the only solution to their office needs are new developments.”

On average, large office developments take two years to construct with the result that major users are having to plan up to three years in advance to cater for their expansion needs.

“They can’t find existing space. These users are looking for new properties generally larger than 5000m².”

Green says the development of offices has already begun in earnest. Pace, in association with real estate services firm Cushman & Wakefield, recently negotiated a new office development with highway frontage for Motorola in Woodmead. He says the development has 4500m² of space.

Green says businesses looking for space are often in premises where there is no opportunity for expansion or the buildings do not suit their requirements.

Generally, major office users prefer to be tenants as this allows them flexibility should they need to relocate. These users will get developers to build new space for them but they will remain tenants in the new premises.

Green says although SA’s office space is becoming relatively expensive, it still remains the cheapest in the world. “In other prime European locations, office users would be paying five to 10 times more than in SA.”

According to this year’s edition of Office Space Across the World, a global report on office occupancy costs by Cushman & Wakefield, London’s West End district retains its title as the world’s most expensive office location, where a square metre of prime office space costs €2009 a year. This is 35% higher than in Tokyo, at €1493, which this year has overtaken Hong Kong (€1448) to take second place.

Rode & Associates property economist Erwin Rode agrees that large users of space will have to have office space built for them.

“The mechanism, if you are a major user of office space and you want new space or want to expand, is to have something built because the vacancies are so low. As a consequence of this, the new space will reflect the much higher building costs of today. We are talking about rentals of R120/m².”

He expects the property market to react to this demand for space. “We will have a flood of new office developments coming to market over the next few years, so in my opinion the office property boom will last at least five years.”

Dave Russell, director of office and industrial property brokers Baker Street Properties, says Cape Town’s office market probably has about the “lowest vacancies in the country”.

“Areas such as Century City, which has land zoned for office development, will be one of the areas which will enjoy the demand for office space.”

Article by: Nick Wilson -