The long-suffering office sector, which was almost left for dead in the wake of the pandemic, appears to have been resuscitated. It has taken six years, but vacancies and rental growth, two key measures of the sector’s health, have finally returned to levels last seen in 2019.
It’s a trend that bodes well for developers and landlords, who have faced years of shrinking returns as work-from-home and hybrid working models threatened to make millions of square metres of office space redundant.
Latest figures from the South African Property Owners Association (Sapoa) show that the average office vacancy rate across major cities and business hubs fell to a seven-year low of 12.1% in the second quarter. That’s down from a peak of almost 17% in mid-2022.
It must be said that South Africa’s total tally of office stock ballooned by a hefty 75% in the decade up to mid-2022 on the back of a construction boom. So by the time Covid hit, many nodes were already grappling with an oversupply. The upshot was that the national vacancy rate had more than doubled from a multidecade low of about 5% in 2008 to 11% by the end of 2019.
The good news is that since supply peaked in mid-2022, the amount of office space available to rent has shrunk by almost 30%. Sapoa figures show that about 860,000m² of surplus stock has been removed from the market in the past four years, largely through office-to-residential conversions, demolitions and tenants becoming owner-occupiers.
Landlords’ asking rentals are also on the rebound; Sapoa records an inflation-beating 7.4% rise year on year. That’s a marked improvement on the near-zero growth seen between 2021 and 2024, when many office nodes were buckling under “To Let” signs and many landlords could hardly give their space away.
Still, the recovery remains highly uneven. Buildings with big pockets of vacant space tend to be older B- and C-grade properties, where vacancy rates still exceed 16%. In stark contrast, modern premium-grade offices with all the bells and whistles have a vacancy rate of just 4.6%. A-grade buildings have also enjoyed a strong revival, with vacancies now back in single digits at 9.7%.
Comeback kid
On a regional basis, Cape Town continues to decouple from the rest of the country. The Mother City’s office vacancy rate has fallen to a multiyear low of 6.2%, well below Joburg’s 15.1% and eThekwini’s 11.9%. In Cape Town’s popular office nodes such as the V&A Waterfront, Century City and Bellville, there’s virtually zero premium- and A-grade space to let.
There are encouraging signs that tenants are slowly returning to Sandton, South Africa’s largest commercial node, with 1.83-million square metres of office space. By comparison, Cape Town’s city centre has just over 1-million square metres.
Sandton’s overall vacancy rate remains elevated at 14%, but that’s a significant improvement from the near 20% levels recorded in 2022. Meanwhile, several other Joburg office hubs have already seen vacancies drop to below 10%, including Rosebank, Melrose/Waverley, Fourways and Bryanston/Epsom Downs.
According to John Jack, CEO of property brokerage and advisory firm Galetti Corporate Real Estate, Sandton’s oversupply problem predates the pandemic. He says that at one point in early 2016, almost half of all office development in South Africa was taking place in Sandton.
“When the pandemic hit, demand switched off completely. Work-from-home, semigration, corporate downsizing and soaring building costs all compounded the problem and left the market with a huge supply glut,” says Jack.
Six years later, the market is showing signs of life again. Jack says large-scale office-to-residential conversions have absorbed a significant portion of Sandton’s excess stock. At the same time, a growing number of corporates are choosing to own rather than lease their premises, taking advantage of attractive property prices — especially in Joburg. Discovery’s R4bn acquisition of its Sandton headquarters earlier this year is a case in point.
The work-from-home tide has receded, and the post-Covid corporate downsizing appears largely complete. “Most corporates now recognise that the office remains central to collaboration, company culture and career development,” says Jack. “Attracting and retaining talent has become a major driver of office location decisions.”
Though the sector has far from fully recovered, Redefine Properties CEO Andrew König says the office market is poised for a comeback, particularly in Joburg. In fact, he says astute real estate investors and developers are once again looking to develop new office stock in certain areas.
“If you want to make money in the next few years, Joburg, and not Cape Town, is the place to be,” he says.
There is already a shortage of large-format premium office space developing in Sandton and Rosebank, given the absence of new projects in recent years. In fact, Redefine has hardly any larger spaces of 7,000m²–10,000m² left in these two nodes.
König says Joburg’s premium-grade office market could see a 20% uplift in value over the next two to three years as supply constraints start to place upward pressure on rentals and property prices.
While Redefine’s rental reversions — when rentals are reset on lease renewals typically after three to five years — are still negative, they have improved notably: from a peak of -17% in 2022 to -12.7% in July. More encouragingly, the average rental in Redefine’s office portfolio climbed 3% from R186.30/m² to R192.90/m² in the 12 months to July.
Location, location, location
The trend is not yet reflected in the office portfolio of Growthpoint Properties, which owns 140 office buildings, worth nearly R28bn, about 70% of which are in Gauteng.
Outgoing CEO Norbert Sasse tells the FM that while the company’s Cape Town and Umhlanga office portfolios are virtually fully let, Gauteng is still struggling. He says Growthpoint is still seeing pockets of vacancies of more than 20% in Sandton, Midrand, Bedfordview, Parktown, Rivonia and Bryanston.
The huge divide between the performance of Growthpoint’s Western Cape and Gauteng office portfolios is evident from its latest rental reversion figures. In the year to June 30, Growthpoint achieved average rental growth of 0.4% on lease renewals in the Western Cape, while in Gauteng rentals reverted downwards by 10.2%. Similarly, office vacancies in the Western Cape have fallen to 3.6%, while Gauteng vacancies are still lingering at 18%.
Sasse is not convinced that Joburg’s market will see a broad and meaningful uptick any time soon.
“To stimulate demand for office space, we need consistent annual GDP growth of 2.5%–3% and a marked drop in unemployment,” he says.
But Sasse concedes that it is now about having the “right stock in the right nodes” — a view that has seen Growthpoint pivot to a precinct approach, where offices form part of a mixed-use offering complemented by retail, residential and hotel structures. Examples include the V&A Waterfront, the Longkloof Precinct in Cape Town’s Gardens suburb, and Sandton Summit, which is emerging around the Rivonia Road and Katherine Street intersection and anchored by the head offices of Discovery, Sasol and Bidvest Bank.
“We like the precinct approach because we can control the narrative by fixing and maintaining the surrounding infrastructure and curating the type of tenants we want to bring in,” says Sasse.
The billion-rand question is whether Joburg’s crumbling infrastructure and poor municipal service delivery will improve after the November election.
“A different political regime could be very positive for the city’s commercial real estate market and could go a long way towards closing the valuation gap between Gauteng and the Western Cape,” Sasse says.
Just how stark that discount has become is illustrated by research from commercial property data and software provider Gmaven, which shows that A-grade offices in Joburg are today typically selling for less than R10,000/m². In Cape Town, a comparable building will fetch three times as much. The same trend is evident in the retail and industrial sectors.
In fact, Gmaven estimates that Joburg’s commercial property market (including all offices, retail and industrial buildings) trades at a staggering R196bn discount to Cape Town’s — despite Joburg having about 54% more commercial space. It is a glaring valuation gap that Gmaven CEO Will Harris attributes largely to the incompetence of Joburg’s government.
“As service delivery deteriorated, staff semigrated and public transport frayed, businesses voted with their feet. Some firms folded and others relocated, and demand fell. Landlords cannot conjure tenants, so owners have watched, largely helplessly, as value drained away.”
Referring to Cape Town’s 15 years of DA-led government, Gmaven says: “The numbers show what the same asset class does under an administration that works.”
