Cape Town faces office space shortage

Cape Town is experiencing a shortage of office space, with occupancy rates hitting their highest level in 15 years. This trend suggests that Cape Town is increasingly rivaling Johannesburg as South Africa’s economic center.

Vacancy rate has more than halved

The Financial Mail reported that Cape Town’s office vacancy rate has more than halved over the past two years, dropping from nearly 14% to 6.3%. This is the lowest it has been since 2009.

According to the most recent office vacancy survey by the South African Property Owners Association (SAPOA), the City of Johannesburg’s office vacancy rate was 16.9% in Q2 2024. Despite a slight improvement from 19.5% in Q2 2022, it is still significantly higher than the 12.5% vacancy rate at the end of 2019.

An article by bizcommunity suggests that the boom is driven mainly by Cape Town’s success in service delivery. Also, the tourism revival plays a major role. Many investors from other provinces have relocated their businesses and families to Cape Town. Additionally, multinational companies have also seen the value of Cape Town as an expanding new investment and business-friendly destination.

The influx of visitors and investors into the Cape Town residential property market has increased the demand for Cape Town office space substantially.

The impact of troubled assets in rental property context

Troubled assets could negatively impact overall rental growth if owners offer attractive incentives and lower rentals to attract tenants. Sandton, Johannesburg CBD, and Durban CBD were areas with high numbers of troubled assets in Q2 2024, according to SAPOA. This suggests that these areas might be experiencing economic challenges or market saturation.

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%. The new core, with newly built stock, had a significantly lower vacancy rate of 9.3%.

Troubled assets refer to properties that are experiencing financial difficulties. Examples of troubled assets are properties that have been unoccupied for an extended period, are facing legal proceedings, and properties in need of significant repairs or renovations.

To attract tenants, owners of troubled assets may offer incentives like rent reductions or concessions. This can lead to a downward pressure on overall rental growth in the market.