Alarm bells ringing in the Centurion office space market

28-07-2016

The Pretoria decentralized office market continues to suffer from the aftermath of overzealous development coupled with weak demand for space to rent. This statement especially applies to Centurion, one of its largest and most popular office areas.

The accompanying graph illustrates the problem facing Centurion. It shows how, since 2009, the total stock of office space in Centurion has accelerated and headed north, far outpacing the demand for space (floor areas occupied for grades A and B combined). Demand was calculated by subtracting the square metreage of vacant space from the total square metreage of stock. The widening gap between stock and demand ─ as seen in the first graph ─ therefore represents the rise in vacant office space. This explains why ─ as shown in the second graph ─ prime office vacancy rates in Centurion jumped from about 5% in 2009 to roughly 18% in the second quarter of 2016.

Much like in the case of Sandton, Centurion’s Gautrain station also made the development of new office space in this node much more attractive. The question is why has Centurion underperformed relative to Sandton? The answer might lie in the fact that the latter’s office market is more dense, with work opportunities within walking distance of the Gautrain station.

Nonetheless, during the second quarter of 2016, the office vacancy factor in Centurion was also the highest among all the nodes surveyed by Sapoa, with vacancy rates in nodes such as Brooklyn, Menlyn, Lynnwood, Hatfield and Highveld Technopark ranging between 6% and 11%.

For now, discouraging for the demand and vacancy-rate outlook in Centurion (and the country’s other office nodes) must be the current waning in business confidence (in the second quarter of 2016 only 39% of the respondents in the BER’s business confidence survey reported prevailing business conditions to be satisfactory). Firms are therefore likely to continue to think twice about expanding their premises or hiring new employees. The implications of this can be assumed to be continued lacklustre demand for office space to rent in Centurion.