If you add together all the office buildings in Sandton and Cape Town’s CBD — two of SA’s largest business nodes — the total rentable floor space comes to a hefty 3-million square metres. That’s exactly how many square metres of offices are currently standing empty across the country.
This unused space has pushed the official office vacancy rate to a record 16% for December, according to the most recent quarterly office vacancy survey by the SA Property Owners Association (Sapoa). That’s up from 11.6% in the pre-Covid days of March 2020, and 100 basis points above the previous high of 15% in 2003.
Still, the rate at which new developments have come to market in the past two decades means the amount of unoccupied space has almost doubled, from 1.6-million square metres in 2003 to 3-million now.
The bad news is that the adoption of remote working policies is likely to result in more companies vacating their premises or reducing their footprints as leases come up for renewal.
"In the short term, all indications are that the overall office vacancy rate will remain on the up," says MSCI vice-president of real estate research Niel Harmse, who compiles Sapoa’s office vacancy reports. "Significant economic and employment growth is required post-pandemic if the office sector is to be transformed into a leaner version of itself."
The upside is that developers, JSE-listed real estate investment trusts and investors are joining forces to find new purposes for surplus office space, which could reverse the trend. By Harmse’s estimate, at least 493,000m² of office space has been (or is being) converted for alternative uses — mostly residential — since the third quarter of 2019. That’s substantial floor space — roughly equivalent to the total office stock of popular Joburg commercial nodes such as Rosebank or Bryanston.
Harmse notes that during the 2003 vacancy peak at least 620,000m² of office space was turned into residential stock. At the time (2001-2005), most of the activity was centred on creating affordable housing units in SA’s old city centres. As a result, he says office-to-flat conversions helped reduce SA’s average CBD office vacancy rate from 21.4% in 2003 to "only" 12.9% by 2006.
Significant economic and employment growth is required ... if the office sector is to be transformed into a leaner version of itself
— Niel Harmse
According to Harmse, the current cycle is different in that conversion activity is not limited to the inner-city markets, but includes large projects in decentralised nodes. While recent repurposing efforts may not yet have made a noticeable dent in SA’s office surplus, he believes they will aid in gradually reducing the overall vacancy rate.
As it is, the space-recycling trend is set to gain further momentum this year. At least 2,600 new residential units and extended-stay hotel rooms (aparthotels) are estimated to be in the planning process or under development in various conversion projects across Joburg and Cape Town.
Last week, JSE heavyweight Growthpoint Properties, BlackBrick Hotels and unlisted Setso Property Fund launched BlackBrick Bedford, which will turn the Riverwoods office park in Joburg’s Bedfordview into a co-living and co-working "resort". The development, set on 35,000m² of parkland, will include 253 residential and hotel units, with prices starting from R695,000.
Bedford is BlackBrick’s fourth conversion project, bringing to more than 800 the number of residential and hotel units developed (and under construction) since the company launched its concept in the old SA Breweries head office on Fredman Drive, Sandton, in 2019. BlackBrick Cape Town, on the city’s foreshore, was completed last year, and a second Sandton conversion, also on Fredman Drive, is under way.
BlackBrick founder Moritz Wellensiek has identified six other office buildings in Joburg, Cape Town and Durban that he hopes will bring at least 1,000 more residential and hotel units to the market within two years.
Africrest, which is also becoming a major player in the office-to-flat conversion space, is turning auditor PwC’s former Joburg head office into 681 rental apartments.
Its Apollo development, which is nearing completion, is the largest office-to-flat conversion yet undertaken in SA.
In Braamfontein, opposite Wits University, Growthpoint, contractor Concor and fund manager Vulindlela are developing The Groove, a 13-storey building that will provide accommodation for 899 students. The project is part new build and part repurposing of the buildings on the site of the old Doves & Kloppers funeral parlour.
The cranes are also out in Cape Town’s city bowl, where a number of old office buildings are being turned into mixed-use offerings, with a large residential and aparthotel component. Among these is One Thibault, on the foreshore, with 170 units; the conversion of the old Absa building on Heerengracht Street into Foreshore Place, with more than 200 apartments on 11 floors; and The Barracks in Bree Street, with a residential offering of 70 micro-apartments.
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