Johannesburg South Africa Q2 2021 Real Estate Market
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South Africa Q2 2021 Real Estate Market Johannesburg
Office Sector
10.42 million 17.0% 10.0%
Estimated stock Vacancy rate (all grades) Vacancy rate (prime grade)
P = -3.7% Negative,
A = -6.2% cyclical
R170 – R230
B = -5.7% downturn
C = -7.3%
Average prime Annualised Rental outlook
rental range rental growth
Industrial Sector
Growth
inflationary
R65 – R70 linked to 4.5%-8.5%
7.5% annually
Prime rent (Rand/m2) Rental outlook Prime vacancy rate
Hotel Sector
28% R 990 R 282
Occupancy (YTD) ADR (YTD) RevPAR (YTD)
Office Sector City of Johannesburg: office stock by grade & annualised change, 2021 Q2
5.00 4.0%
4.51
Overview 3.0%
Office Stock (m2 Million)
4.00 3.81
2.0%
Stock Growth (%)
The Johannesburg office sector Office demand dynamics have in how tenants potentially opt to
3.00 1.0%
finds itself treading in the deep shifted considerably, as many revise their space requirements
0.0%
end, as an oversupplied market corporates continue to scale down when leases come up for renewal.
2.00 -1.0%
combined with weak corporate on space requirements in line with While office fundamentals are 1.48
demand continue to place new work from home and the office expected to continue softening over -2.0%
1.00 0.62
fundamentals under significant rotational hybrid model. The net the foreseeable future, qualifying -3.0%
pressure. At the end of the second effect is that office foot count has tenants may find great opportunities 0.00 -4.0%
quarter, Johannesburg has the declined significantly from pre- to secure favourable long-term P-grade A-grade B-grade C-grade
highest office vacancy rate across COVID levels. Major uncertainty for lease arrangements. Office Stock Annual Growth
all major metropolitans. landlords and investors alike lies Source: SAPOA, 2021.
Johannesburg’s office sector is Additionally, rising vacancy levels, downscaling and consolidating,
Supply predominantly comprised of particularly among middle-to-upper relocation fit-out requirements
A and B-grade stock. Over the last income residential apartments, continue to prove unaffordable
The City of Johannesburg has been metres of office stock, growing fundamentals and development 12-months, A-grade stock volumes has dampened the general appetite for many. Accordingly, we have
plagued with excess office stock for by 0.7% over the last 12-months. activity at record low levels, have experienced growth of 2.8%, for such conversions. While we started seeing a gradual shift
several years, with more than 1.7 Despite the oversupplied market, however, it is unlikely that much largely a result of downgrades in have started witnessing landlords away from traditional “white-box”
million square metres available for SAPOA’s latest survey result suggests of this stock will come to market ageing P-grade assets. B-grade adopting a “wait and see” approach reinstatement clauses, where
leasing at the end of the second that approximately 34,000 square over the short term. Committed office volumes experienced a 3.1% in response to uncertainty around previous fit-outs are left as is and
quarter of 2021. The city has metres of new committed stock developments are concentrated in contraction due to both quality business continuity and regulation, neutralised for new tenants.
approximately 10.4 million square have been recorded. With demand the Rosebank and Waterfall nodes. downgrades and rezoning to allow attention is instead focused on This way, landlords create a more
alternative use. While the market CAPEX spend to enhance existing affordable, turn-key space solution
showed initial activity among assets. By this, landlords look to for new tenants. It is, therefore,
residential office conversions, provide a competitive and attractive an opportune time for those
City of Johannesburg: total office stock, 2018 - 2021 uncertainty around take-up vis-à-vis product in the market, retaining tenants well versed in market
high construction costs continue existing and/or attracting new related deals to sign into
10.50 to pose viability risks for landlords tenants. Although there has been long-term lease agreements.
10.42
and developers alike. a significant shift in corporates
Total Office Stock (m2 Million)
10.40 10.34
10.27
10.30
10.20
10.10 10.03
10.00
9.90
9.80
2018 Q2 2019 Q2 2020 Q2 2021 Q2
City of Johannesburg
Source: SAPOA, 2021.
Before the onset of COVID-19, giving up portions of occupied has subsequently started seeing
corporates were already looking at space. This trend has shown to be landlords compete on incentive
using space differently, regularly particularly common when leases schemes offered, all driven to attract
approaching landlords to negotiate come up for expiry. The market new and retain existing tenants.
Performance
An oversupplied office market to let, with premium and A-grade Rivonia have experienced particular Uncertainty around short-to-medium concessions remains a function of rentals in certain instances have been
combined with a shift in corporate vacancy rates standing at 13% pressure within the A and B-grade term economic stability has caused covenant strength, subject to agreed recorded at levels as low as 20%-30%
demand dynamics has seen and 24%, respectively. Sandton’s segments, a recent uptick in many corporates to pursue shorter, escalation rates, rental levels, size of below asking. The oversupplied,
Johannesburg’s office fundamentals B-grade vacancy rate reached 34% enquiries for smaller floor plates lower risk lease agreements. enquiry, and lease period length. tenant driven market will likely
come under severe pressure. by the end of the second quarter, in these nodes has been reported. Traditional 5-10-year lease periods see rental levels continue rebasing
The accelerated softening in office while the aggregate vacancy rate This has partly been driven by are being signed at 3-years, With Johannesburg’s office vacancy downwards. However, the softening
performance is most notable in for the commercial node currently corporate consolidations and a some with a break clause option rates rising across all segments, rental of rentals may see businesses trade
the city’s inflated vacancy rate, stands at 21%. Although Rosebank’s growing semigration trend, every 12-months. Alternatively, levels continue to erode as landlords up from older stock to premium
which now stands at 17%. Vacancy prime office market has fared where businesses are starting to negotiations have included are left with few options but to and A-grade space. Although this
rates increased across all grades considerably better (a vacancy rate look at moving closer to the suburbs, one-year leases with an optional become increasingly aggressive will likely improve occupancy levels
over the 12-months leading to June of 3.3%), A (18%) and B-grade (23%) bringing employees closer to home. 12-month extension each time. with their concessions offered in amongst investment-grade office
2021. A-grade office stock suffered office vacancy rates have reached This aligns with the emerging shift Although landlords have become the market. Annually, P and A-grade stock, negative rental reversions
the most significant pressure, record-high levels. Corporate in corporate demand dynamics, more accommodating in their lease office rentals contracted by 3.7% and will inevitably reduce landlord
increasing by 60% annually, consolidations, shifting demand whereby work-life balance and negotiations, flexibility in tenant 6.2%, respectively, though achieved income returns.
reaching 15.6% at the close of the dynamics, and an accelerated employee wellness are becoming
second quarter. Premium grade semigration trend are likely to a growing priority. The continuously
office vacancies have also been continue placing pressure on evolving workplace hybrid model
affected severely, experiencing Johannesburg vacancy rates. has allowed businesses to City of Johannesburg: Average Gross Asking Office Rental by
growth of 28% to reach double- re-consider new office locations
digit figures. Sandton remains the While decentralised commercial and floor plates that were simply Grade, 2018-2021
node with the most available space nodes such as Bryanston and not viable pre-COVID.
R250.0
R215.8
R211.1
R210.0
R203.4
City of Johannesburg: Vacancy Rate by Grade, 2018-2021
R200.0
R158.6
R155.6
R151.4
R142.1
22.6%
25.0%
Asking Rent per m2, Rand
21.3%
21.3%
R150.0
R114.9
R114.5
20.5%
R113.0
R106.6
19.1%
R92.5
R91.7
R90.1
20.0%
R85.1
16.7%
16.4%
16.1%
R100.0
15.6%
15.0%
R50.0
10.4%
10.3%
10.0%
Rate (%)
9.7%
7.8%
10.0%
R-
4.8%
4.9%
P-grade A-grade B-grade C-grade
5.0% 2018 Q2 2019 Q2 2020 Q2 2021 Q2
Source: SAPOA, 2021; Rode, 2021; JLL, 2021.
0.0%
P-grade A-grade B-grade C-grade
2018 Q2 2019 Q2 2020 Q2 2021 Q2
Source: SAPOA, 2021.City of Johannesburg: Average Gross Asking Office Rental by Grade &
Annual Change, 2021 Q2
R250.0 0.0%
-1.0%
R203.4
R200.0
Gross Asking Rent per m2, Rand
-2.0%
Rental Change (%)
-3.0%
R150.0 R142.1
-4.0%
R106.6
R100.0
R85.1 -5.0%
-6.0%
R50.0
-7.0%
R- -8.0%
P-grade A-grade B-grade C-grade
Asking Rent Annual Change
Source: SAPOA, 2021; Rode, 2021; JLL, 2021.
Outlook
Johannesburg’s office market is the accommodative monetary and identify the best-fit repurposing
anticipated to remain in turbulent fiscal policy will be vital in restoring models, appropriately responding
waters over the foreseeable future, both local and international to corporate migration trends
with vacancy rates and rental levels business confidence. The case for and the socio-economic needs
expected to continue softening. repurposing and refitting old vacant of residents in the area. While
Sustained real economic growth, office space is still strong; however, the demand for traditional office
particularly within the financial traditional residential conversions space in Johannesburg has and
and business services sector, in commercial nodes may be less continues to change as we know
will be critical to the long-term viable than in the past, given the it, the appetite for productive, safe
path of recovery. Furthermore, the shift in demographic demand and employee focused workspaces
successful scaling and roll-out of dynamics. Critically, landlords and continues to grow.
the COVID-19 vaccine coupled with developers need to proactivelyIndustrial sector
Market Overview
Although not unscathed, seeking consolidation and efficiency to outsource smaller logistics
Johannesburg’s industrial benefits. Subsequently, 10,000m2- companies, taking up spaces
market has shown considerable 25,000m2 box sizes have shown in the 2,000m2-4,000m2 range.
resilience over the past 18-months. a firming up in occupancy levels Though still in its nascency stage,
While the national aggregate over the same period. Similarly, the move towards centralising
industrial vacancy rate has risen smaller industrial formats (less supply chains echoes the last mile
to 5.9%, Johannesburg’s average than 2,500m2) continue to perform and urban logistics trends practised
nodal vacancy rates have softened resiliently, with increased take-up in more developed markets.
slightly, ranging between and rental growth, partly driven While speculative developments
4.5%-8.5%. Industrial distribution by medium-sized businesses seem to have slowed down across
and multi-parks have outperformed consolidating operations. Johannesburg, a healthy pipeline of
all segments, driven by a rebound new builds will continue to come to
in retail trade volumes and a While fundamentals among higher market, as large operators typically
surge in e-commerce activity. quality industrial stock have prefer to fit new premises to their
Many traditional retailers have remained firm in Johannesburg, exact specifications. This trend,
introduced online sales platforms older decentralised nodes however, inevitably places pressure
in response to trade restrictions (e.g. Jet Park, Germiston etc.) on fundamentals for the existing
and reduced foot traffic, further continue to see vacancies rise stock in the market. While average
driving the demand for storage and and rentals come under pressure. gross rentals for quality industrial
distribution space. Interestingly, This stems from a trend whereby space typically range between
big-box industrial space exceeding operators have started relocating R65-R70/m2, some of the newer
25,000m2 experienced a significant to more centralised, strategic specialised builds have reported
spike in vacancy rates, likely caused urban industrial parks. Large retail rentals exceeding R80/m2.
by larger operators scaling down distribution operators are beginning
City of Johannesburg: Gross Industrial Asking Rental,
Average vs Highest Prime
R92.8
R91.9
R100.0
R85.3
R84.4
R77.9
R90.0
Gross Asking Rent per m2, Rand
R80.0
R70.0
R51.4
R50.7
R49.1
R47.4
R60.0
R42.3
R50.0
R40.0
R30.0
R20.0
R10.0
R-
2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2
CoT Prime Mean CoT Highest Prime
Source: Rode, 2021; JLL, 2021.Hotel Sector
The second quarter of 2021 started pressure. During the second quarter in December last year. The 3-star
with April registering the highest and for the first time since the market across the province leads
average national occupancy rates pandemic started, Gauteng has the decline, but even more so in
of any month since the start of recorded lower occupancy rates Sandton, where the 435-key Hotel
the COVID-19 pandemic. At 40%, than the Western Cape and the Sky recently opened, putting further
occupancy levels were nearly lowest sub-market in South Africa. pressure on market occupancy
double the rate recorded in January While occupancy rates in most rates. Pretoria continues to be the
and slightly higher than the previous major markets in South Africa have most robust market in the province
peak of 37% over the summer strengthened compared to the latter despite only averaging occupancy
holidays in December 2020. part of 2020, Johannesburg has rates of around 36% during April
weakened. Johannesburg recorded and May.
As with much of the province, occupancy rates of 23% during
Johannesburg continues to April and May compared to 26%
experience very severe demand
City of Johannesburg Occupancy City of Johannesburg ADR & RevPAR
Comparison: June 2020-2021 Comparison: June 2020-2021
40% R1,200
34% R999
35%
R1,000
30% 28%
R800 R758
25%
20% R600
15% R400
R259 R282
10%
R200
5%
0% R0
Occupancy ADR RevPAR
2020 2021 2020 2021
Source: STR, June 2021.
Despite the strong momentum entering a new wave of COVID-19 likely end with substantial pent-up
carried by the local hotel market infections and an expanded set demand for domestic travel, with a
during the first five months of the of restrictions. While the next few vaccinated international community
year, the second quarter comes months will be challenging for the ready to consider cross-border travel.
to a close as South Africa is again hotel market, the third quarter willContact us JLL Sub-Saharan Africa Johannesburg 3rd Floor, The Firs Cnr Biermann & Cradock Ave Rosebank, South Africa, 2196 Phone: +27 11 507 2200 Michael Scott Analyst, Research JLL Sub-Saharan Africa +27 11 507 2200 michaelc.scott@eu.jll.com www.jll.co.za © 2021 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.
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