If you want to see the extent to which the pandemic has disrupted commercial real estate markets, a quick drive around Sandton should do the trick.
What was until recently SA’s busiest and largest business hub has become unnervingly quiet. Clearly, the people (and cars) forced out of Sandton when companies began working remotely in late March have yet to return. In fact, the only thing that seems to have multiplied in recent months is the number of "To Let" signs affixed to Sandton’s myriad half-empty office buildings.
A similar scene is playing out across many other commercial nodes.
Data released earlier this month by the SA Property Owners Association and investment research firm MSCI confirms a noticeable rise in empty office space across major metros.
SA’s official office vacancy rate jumped from 11.6% in the first quarter of 2020 to 13.3% in the fourth quarter — the highest level in 16 years (see graph).
Though a 1.7 percentage point increase may not seem that significant, it equates to more than 350,000m² of office space becoming vacant between March and December. That’s more than double the size of a large super-regional shopping centre such as Sandton City.
Niel Harmse, senior research associate at MSCI, says while office vacancies have been broadly on the up since 2013, the curve has "steepened dramatically" since March.
The biggest jump in vacancies occurred in the older B-and C-grade segments of the market, which weakened to 16.1% and 16.4%. Harmse says these segments are particularly vulnerable to economic shocks, given the proportion of SMMEs in their tenant base.
In square metre terms, Sandton has the most A-, B-and C-grade office space to let of all office nodes in SA. It’s followed by the CBDs of Joburg, Durban and Cape Town, as well as other Joburg areas such as Midrand, Bryanston, Parktown, Sunninghill and Braamfontein.
Harmse believes a return to single-digit vacancies seems "almost unimaginable" without the large-scale repurposing of space.
He cites rising financial pressure among tenants on the back of a weak economy, coupled with improved technology and the pandemic-induced adoption of the work-from-home trend, as key reasons for the increase.
The upshot is that SA Inc has been forced to rethink its physical office needs in a bid to cut overhead costs.
Results released by JSE-listed Emira Property Fund last week confirm that some companies are giving up their offices permanently, or at least reducing their footprints, when leases come up for renewal.
Emira, which owns a large number of office buildings in Joburg’s northern suburbs, among others, saw its office vacancy rate more than double in the six months to December — from 6.9% to 14.9%.
The vacancy rate at one of its Hyde Park buildings is now 43%; a building in Bryanston is at 40%.
Emira COO Ulana van Biljon ascribes the sharp rise to a few large corporate tenants vacating their premises after adopting remote working strategies. Others are reducing or consolidating space, or asking for early lease reviews.
"Most corporates are now reconsidering their office strategies but many aren’t quite sure how to take it forward," she says.
Still, Van Biljon believes most companies want to retain a physical office — albeit perhaps smaller than before — to enable much-needed human interaction with employees.
Michael Scott, research analyst at real estate advisory firm JLL Sub-Saharan Africa, says companies have already started using office space differently. He believes the hybrid office model will become the preferred option for most corporates.
[Hybrid working is]
— Joanne Bushell
here to stay when
life after lockdown
resumes
"The traditional office model as we know it is expected to gradually evolve towards one of a hybrid nature, whereby a combination of serviced office, satellite working, partner offices and home-based setups are adopted," says Scott.
Joanne Bushell, MD of global flexible workspace provider IWG’s SA operations, agrees that hybrid working is becoming the new norm. "And in our view, it’s here to stay when life after lockdown resumes," she adds.
Because the remote working experiment proved more successful than most people expected, Bushell says every employer, large or small, is asking themselves whether their staff will go to the office again and, if so, how often.
She expects most companies will opt for a hybrid working model, as it enables the best of both worlds: employees can work from home, but also come into the office to use communal space for camaraderie and collaboration.
This hybrid style won’t be limited to where people work, says Bushell — it will also determine how and when they work.
To compete for and retain talent in the increasingly mobile economy, businesses may need to rethink typical work schedules and allow employees to structure their work hours to fit in with the rest of their lives, instead of the other way around.
Ultimately, says Bushell, the hybrid model is about more freedom, flexibility and choice.
Who wouldn’t want that?
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