The number of half-empty office buildings across many of SA’s once bustling commercial hubs has reached sky-high levels. In Sandton, SA’s largest business node by far, office vacancies rose to a record 22.5% in the fourth quarter of 2021, up from a pre-pandemic 17%, according to the quarterly "Rode Report on the State of the SA Property Market".
The same trend is evident in other major nodes, including Joburg’s Rosebank, Parktown and Rivonia. In Waterfall City, Midrand, where a number of new buildings have been completed over the past few years, the office vacancy surged from 4% in 2019 to nearly 18% in the fourth quarter. In Cape Town, vacancy rates in the CBD and Century City virtually doubled, from about 10% to 20%, over the same period.
The pandemic-induced remote working trend has dealt a "killer blow" to SA’s office sector, says Rode Report editor Kobus Lamprecht. Developers have also added plenty of new stock to the market, which hasn’t helped matters.
The bad news is that more companies are expected to vacate their business premises, or reduce their footprints, as leases come up for renewal. (Office tenants are typically locked into leases for three to five years.)
Worryingly, Lamprecht points out that the vacancy rates include only offices that have been officially vacated. They don’t take into account the high percentage of space standing empty — or partly in use — that is still encumbered by a lease. As a result, he expects to see a further rise in vacancies over the next few years.
John Loos, property sector strategist at FNB commercial property finance, similarly believes there’s still no end in sight to the rising vacancies. That’s despite the expectation that employees will start trickling back to the office this year as economic activity normalises.
"We believe full-time office working won’t go back to pre-lockdown levels," he tells the FM. "As technology continues to improve, so the multidecade trend towards greater remote working will resume, following the initial move back to the office."
It’s not only remote working that will affect future demand for offices. Loos notes that last year’s major job losses also suggest less office space will be needed.
In addition, the trend towards better use of space by "hotelling" desks is gaining in popularity. Loos says many big corporates, FirstRand among them, are introducing a system where employees either book a desk for a day or they don’t have one.
"This sharing of desk space will further reduce the need for office space in the coming years," he says.
The upshot is that office landlords will have to come up with creative ways to attract and retain tenants. It seems the incentives property owners traditionally used to encourage tenants — reduced rentals, rent-free periods, installation allowances and free parking — will no longer cut it.
John Jack, CEO of Galetti Corporate Real Estate, says landlords are now offering an array of leisure amenities to sweeten the deal. These include on-site baristas, fully equipped gyms with free access for tenants, hot showers and rooftop bars for after-work drinks.
He expects there will also be more demand among corporate tenants for better-equipped work spaces, including more rooms set up with video conferencing technology and the introduction of modular furniture that can be adapted for different usages.
Rob Kane, chair of the Cape Town Central City Improvement District, believes employees’ expectations have shifted to such an extent that the office can no longer be only a place to work. "Offices are evolving into multifunctional spaces to lure employees back ... with communal hot spots and chill zones to encourage real human connection and creativity," he says.
Kane, who is also CEO of the Cape Town-based Boxwood Property Fund, says commercial landlords are realising that recreational amenities need to be added to the mix. "We are moving away from what a typical office looks and feels like, and what kind of facilities it might have offered in the past. We are now designing more with workers’ needs in mind," he says.
Boxwood recently redeveloped the once staid Picbel Parkade building on Cape Town’s foreshore. Now known as The Felix, it’s a "recreational" work venue that incorporates plug points for laptops, an open-air meeting area, an indoor garden, braai spots and a boxing gym.
Kane’s sentiments are echoed in a "Future of Work" report released by global real estate advisory firm JLL last week. It highlights employee well-being as one of the key trends to shape the workspace in 2022.
According to JLL, skills shortages are at 15-year highs in most parts of the world. This growing skills shortage, and looming "war for talent", will force companies to offer better incentives to lure and retain staff, including amenity-rich work spaces, more flexibility and health and well-being programmes. Those that don’t heed JLL’s warning may well risk losing talented staff to their competitors.
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