South Africa's Growthpoint seeing more demand for coastal offices

Growthpoint Properties is seeing more demand for its Cape Town and KwaZulu-Natal offices while Johannesburg lags due to oversupply, executives of South Africa's biggest property company said on Wednesday after recording a fall in distributable income.

Growthpoint Properties is seeing more demand for its Cape Town and KwaZulu-Natal offices while Johannesburg lags due to oversupply, executives of South Africa's biggest property company said on Wednesday after recording a fall in distributable income. Office landlords globally are facing challenges as working from home leads tenants to reconsider floor space, just as higher interest rates reduce building values and raise debt servicing costs.

Growthpoint, with about 155 office properties in South Africa, sold about 267 million rand ($14.16 million) worth of office space in the year ended June 30, which partly helped in reducing vacancies to 19.2% from 20.7% after peaking at 22.4% in March 2022. Most of the reduction in vacancies came from the coastal Western Cape and KwaZulu-Natal provincial regions which house Cape Town and Umhlanga Ridge respectively. In KwaZulu-Natal vacancies were at 1.7% down from 7.7% and 7.7% in the Western Cape from 13.6%.

Group Chief Executive Norbert Sasse told journalists that demand at these coastal nodes was benefiting from a combination of firms relocating from elsewhere in the country and demand for office space from both local and international companies expanding into the tech hub of Cape Town. In KwaZulu-Natal, businesses are moving into the upmarket Umhlanga Ridge node and out of the historical central business district. Some are even moving as far as Cape Town due to infrastructure damage caused by the 2021 riots and 2022 floods.

Although Johannesburg remains the biggest hub economically, the office market there is still oversupplied. "On top of that you overlay an environment where you got municipalities in Gauteng that have been incredibly aggressive with increasing administered costs and incredibly poor at delivering services. So that combination isn't really great for real estate," Estienne de Klerk, CEO of the South Africa business said.

The landlord is seeing pockets of improvements in the Gauteng region, where vacancies in Illovo halved to 22%. De Klerk added however that businesses in Sandton were still consolidating and reducing space, even though many large users were back at the office more frequently. ($1 = 18.9310 rand)