Perspective on the Cape Town office market during changing times

The Western Cape remains South Africa’s second-largest municipal economy contributing approximately 9,9% of the country’s GDP. As an established financial and business services hub, Cape Town is responsible for generating most of the province’s income. Multi-national and global organizations continue to be attracted to the city’s lifestyle value proposition and ability to deliver relatively inexpensive, skilled labour.  

However, recent political and economic events have started to impact Cape Town’s property market – perceived to be the most resilient property market in the country. With South Africa’s GDP having declined by a notable 2,2% in the first quarter of 2018, the remainder of the year will be a challenging time, not only in Cape Town, but throughout the country as local and global sociopolitical factors impact negatively on the national economic performance – seeing the country enter a significant period of change.  

 Changing times impacting the Cape Town office market: 

  •  Controversy and uncertainty created by the topic of “land expropriation without compensation” has resulted in companies delaying or cancelling expansion or re-location decisions. 
  • The slowing rate of office-to-residential conversions, which has assisted in reducing office vacancies in Cape Town, is likely to reveal the underlying weak demand in the office market which is prevalent at a national level.  
  • Water scarcity concerns have negatively affected Cape Town’s perception from both a business and tourism perspective and slowed semi-gration from inland provinces into the Western Cape. However, with dam levels now averaging in excess of 70% and water restrictions being eased from October 2018 onwards…this is indeed good news for Cape Town.
  • Office vacancies remain the lowest in the country at 7%. As a result of this, rentals have remained relatively stable. This is in contrast to the rental declines experienced in some nodes in Johannesburg and eThekwini.  It is our view that vacancies will start to increase and there will be little or no growth in rental rates until such time as the economic climate improves.

What does this mean for tenants and landlords?  

  • During times of change or uncertainty, it becomes more important for landlords to focus on tenant retention. The cost of replacing a lost office tenant is proving to be a very expensive exercise with significant financial implications. 
  • In this light, landlords are paying closer attention to the needs of tenants (large corporate tenants in particular), with business owners and executives looking to companies such as Baker Street Properties to assist them in renegotiating existing lease agreements on favourable terms. 

Want to learn more from the sound perspective? Watch out for our upcoming office market report in November. Register here to receive our reports.




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