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A coronavirus fourth wave will further hamper the recovery of the office property market. PICTURE: MICHAEL GAIDA/PIXABAY
Letter from the editor IT WAS March last year when my boss walked into my beautiful office overlooking Greenmarket Square and said that with hard lockdown coming into effect, we needed to pack up for three weeks. My office was in a prime spot in the city of Cape Town and I could hear the bells ring out from St George’s Cathedral. It was full of plants which colleagues had given to me after both my parents’ deaths. On the wall were our ideas and brainstorming notes. It was a place that had many stories to tell of all the deadlines, the laughter, the creativity and even the tears that had flowed in it. I remember packing the few things I would need. A colleague had her car with her so took my plants promising to take care of them (and she has). We walked out of the office that day, too afraid to even hug each other goodbye, and I only returned once, to completely pack up as we – like many others – did not return to the office. Work from home has become the norm. And a small section of my home has become my dedicated “office”. Remote meetings and hybrid events are also normal now. The other day, I had to meet a colleague from another department to pick up some documents. I hadn’t met her since March last year and, unexpectedly, I had tears in my eyes when I saw her. Coming face to face with a part of the pre-Covid world reminded me of all we have all endured, lost and been through. We met three floors down from my old office – now dark and vacant. Will the world ever go back to an office environment? Psychologically I believe it will have to be done in stages. What this means for the office market is not great. Let’s see how it pans out... Warm regards
Vivian Warby vivian.warby@inl.co.za
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Landlords brace for fourth wave Lockdowns later in the year could hit the office space sector just when there were hopes of a recovery BY BONNY FOURIE bronwyn.fourie@inl.co.za
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HE PREDICTED fourth wave of the Covid-19 pandemic in South Africa looks set to whack back the already beleaguered office property market even further, at a critical time when it looked as though it could begin a slow recovery. This, if it happens, it will simply be a repeat of the period a few months back when the third wave scuttled hopes of a perceived return to some sort of normal. “Just when it looked as if more workers would return to the office, the third Covid-19 wave came along in June,” according to Rode & Associates’s Q3 State of the Property Market report. “Another wave closer to the end of 2021 means office property owners are bracing themselves for even tougher times over the short term as many workers will continue to stay away from the office,” it says. FNB commercial property economist John Loos agrees, saying the office market not only has the normal economic challenge of job cuts in office-bound services sectors, translating into companies needing less space, but it is also challenged by “highly successful forced remote working” caused by the 2020/21 lockdowns. “Broker surveys consistently point to many companies re-assessing their office space
needs, and many planning to reduce the amount of office space leased or owned. “This downscaling process may well still be gathering momentum. It is thus looking likely that office property will be the underperformer of the three main commercial property classes in 2021 as a whole and even beyond.” In the long-term, Rode & Associates’s Erwin Rode feels the work-from-home trend is “overstated” as it is not suitable for many companies, especially large corporates. This is because people need face-to-face interaction to build a company culture and morale. “This means a flexible or hybrid approach is likely to become the norm, for example, working three days a week at an office, if required,” he says in the report. The results of Rode’s second office vacancy survey continue to point to a high and rising amount of empty office space, with the national decentralised vacancy rates for grades A and B combined equating to an average of about 14%, “the highest this century”. And the figure could rise further. “The large and growing amount of available space means tenants are spoilt for choice and are clinching eye-popping deals,” Rode says. Interestingly though, Loos notes, the most recent FNB Commercial
Property Broker Survey reveals that vacant office properties are perceived to be selling slightly faster than occupied office properties – for the first time since the survey was started in early 2019. He wonders whether this implies that repurposing of offices is becoming more popular, although says it is “probably a bit too early to tell”. Repurposing of office space into residential accommodation has been a growing trend over recent years, especially in some of the country’s CBDs, but it appears that not all office conversions are for this purpose. Many office properties have been redesigned to cater for flexible workspaces and this was on the rise even before the pandemic. JLL data shows while flexible office space accounts for a relatively small proportion of office markets across most major gateway cities – averaging between 2% and 8% – the rise to this level was swift, with an average of 25% growth a year between 2014 and 2019. In 2019, it accounted for as much as 20% of leasing activity in large cities. Gregory Davis, business development director for Africa at IWG Plc, says despite the impacts of Covid-19 on office space, these workspaces seem to be emerging as a “strong offering and solution” for a return to the
work environment. Such spaces appeal to both tenants looking for flexibility and landlords wanting to differentiate their assets. To this end, management agreements, also called operating agreements, are gaining popularity because they can provide greater resilience for building owners. Explaining this, Davis says a management agreement, in its simplest form, is a partnership between a landlord and a co-working or flexi-space operator. The property owner is incentivised to fill vacant space and the space operator has the ability to manage the co-working space. In a management or operating agreement, the parties agree to share revenue generated from the co-working space. “This is an increasingly popular trend and South Africa’s listed property sector continues to expand its flexible workspace footprint, primarily through partnerships with flexible workspace operators.” Davis adds: “Commercial real estate landlords have an option to take over the ownership of the space themselves and work in conjunction with a flex operator to re-design and run the space as a flex space under a management agreement, fast-tracking the ability to return to a normalcy of operations in their space quickly.”
DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright ANA Publishing. All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from ANA Publishing. The publishers are not responsible for any unsolicited material. Publisher Vasantha Angamuthu vasantha@africannewsagency.co.za Executive Editor Property and Environment Vivian Warby vivian.warby@inl.co.za Features Writer Bonny Fourie bronwyn.fourie@inl.co.za Design Kim Stone kim.stone@inl.co.za
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