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JLL South Africa releases Q4 2016 market reports

Now covering Durban, JLL gives overview of South Africa’s main office, industrial and retail property markets

​JOHANNESBURG, 22 March 2017 - JLL South Africa has released its Q4 2016 research reports for the South Africa retail market, Johannesburg office market, Johannesburg industrial market, Durban office market, Durban industrial market​ and Cape Town office market with the following notable highlights: 

In the retail market, Q4 2016 saw the rise of smaller shopping centres, with community and neighbourhood centres contributing to much of the overall increase in trading density, as well as recording an average 3.4% decline in vacancies. Regional and super-regional shopping centres have over the years seen exceptional performance with the ability to thrive and consistently maintain low vacancies despite unfavourable economic conditions. The number of regional retail developments breaking ground is therefore not surprising.

In Durban, with some of the largest companies setting up shop in Umhlanga, the node’s desirability continues to increase, despite a decline in rental rates over the past quarter. The area is expected to maintain its exponential growth trend with exciting new office developments in the pipeline. Completion of the Park Square development, for instance, is anticipated at the end of 2018. The proximity between Cornubia and Umhlanga may generate some healthy competition in demand for the two areas. For the prospective tenant, the decision boils down to the area with the greater price advantage. Nevertheless, overall demand tends toward newer accommodation, with vacancy rates for Grade P offices sitting at 1.5%.

Current activity in the Durban industrial property market emphasises a shift in accommodation requirements by occupiers, with an increased interest in logistics facilities. Durban’s key location as a hub for South Africa’s trade activity is indicative of the rapid growth in average rentals and the strong demand for space in the trade zone. Sound interest from international retailers expanding in South Africa is also boosting demand. So despite a weak economic climate, demand for space remains robust and the short supply of high-tech accommodation is contributing to rental growth. 

In Johannesburg, there is robust demand for corporate accommodation in prime precincts. Despite a cautious outlook, Grade P rental rates continue to see exponential growth, recording a 10% increase y/y. Waterfall Estate continues to outshine other prime nodes in terms of low vacancy rates, closing the year at a vacancy rate of 1.8%. Sandton remains the major contributor to office stock in the region.

With the added competition from Waterfall City, the question is whether the current boom in Rosebank will be sustainable in the medium term, with the increased development activity, high rental rates and low vacancy rates that the node has been enjoying. There is certainly evidence of stability in the market, but looking ahead, general political and economic concerns may hamper future decision-making, pointing to stagnant growth.

If consumer sentiment is anything to go by, trade activity is likely to remain subdued in 2017. Ordinarily, this would point to low demand for logistics and warehousing space. In a positive contrast, purchasing managers in the manufacturing sector have got off to an optimistic start, which suggests that activity is likely to be better than expected.

In preparation for a year of better economic growth than in 2015 and 2016, the Johannesburg market is experiencing an increase in industrial property deals, particularly in the popular northern and eastern nodes, but also with notable interest in the West Rand. The market saw healthy rental growth and vacancies were at comfortable levels in the last quarter of 2016. Despite a high number of developments, no over-supply is anticipated over the short term.

In Cape Town, although investor and occupier confidence in strong, one of the major challenges is the lack of large office developments that are attractive to large occupiers. Although the city saw the completion of almost 90,000m2 of developments in 2016, only two developments were over 10,000m2 and none reached 20,000m2. This means that Cape Town is likely to continue to lose large occupiers to Johannesburg.