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Cape Town residential vacancies rocket to nearly 30%

‘Double whammy’ sees City Bowl market under unprecedented pressure.
Oversupply is driving down rentals as tenants are in a position to shop around for a better deal. Image: AdobeStock

Residential vacancy levels in Cape Town soared to 28.8% in the second quarter, new data from TPN shows. This means between one in three and one in four rental units are standing empty. These unprecedented levels have helped push up the province’s (in effect Cape Town and the Winelands) vacancy rate to 14.4%, the first time this has been in double digits.

Michelle Dickens, CEO of the credit bureau, says “the Cape Town story is a double whammy of increased supply caused by converting short-term holiday rentals into long-term lets and work-from-home opportunities, which allow tenants to relocate to the more affordable northern suburbs”.

Given the restrictions on travel by foreigners (in their home countries, not necessarily at our borders), so-called ‘Airbnb demand’ has all but dried up in the city.

Landlords would’ve attempted to shift much of this of this stock to year-long rentals last year already, and this supply overhang persists.

The area defined as ‘Cape Town’ in the bureau’s Q2 Vacancy Survey is effectively the City Bowl – in other words not the Atlantic Seaboard, Northern Suburbs, Southern Suburbs or Winelands.

Vacancy rates on the Atlantic Seaboard have recovered from the 24% spike seen in Q4 to 13.3%, not much worse than the 12.4% in Q3 of last year.

The Northern Suburbs remain the best-performing area in the Cape, with a vacancy rate of just 5%.

This is far below TPN’s reported national average of 13.1%.

In its survey, TPN considers inputs from landlords as well as estate agents. It says landlords have reported a vacancy rate of 14.29%, compared to a rate of 9.87% claimed by estate agents.

Dickens says this “begs the question, did landlords reacted slower to reducing their rent and so bear the bigger brunt of overall vacancies?”

Landlords also have a more pessimistic view of the market, with a demand rating of 51.5 (barely above 50) and a supply rating of 73.32 (pointing to an overstocked market). Overall, TPN reports a demand rating of 53 for Q2, with a supply rating of 68.76.

In Gauteng, the largest market (with 47% of all tenants), TPN’s demand rating has dropped below 50 (to 48.15), while the supply rating is at a very high 73.90.

Vacancy rates in the province did, however, recover from 13.8% in Q1 to 12.4% in Q2.

Source: TPN Vacancy Survey Q2

Sandton remains an outlier, with an eye-popping vacancy rate of 26.7%. This is significantly higher than the 22.4% reported in Q4 of last year.

Dickens says this “remains a concern”, noting the impact of office-to-residential conversions “with large lease-up portfolios of quality new units with enticing incentives putting pressure on this area”.

Vacancy rates in most markets within Gauteng are in double-digit territory, with rates elevated in Midrand (20.2%), Soweto (16.6%), Johannesburg (14.6%), Randburg (14.3%) and the West Rand (13.8%). Two markets – Ekurhuleni (9.1%) and Tshwane (9%) – are just under 10%, while Centurion is currently the best-performing with a vacancy rate of 4.8%.

TPN says even though the demand rating in KwaZulu-Natal has “diminished over time”, it “still supports sufficient demand for supply available”.

On the north coast, however, vacancies have more than doubled since Q4 to 17.2%.

Read: Growthpoint’s La Lucia Mall to get R142m apartment development

There is a significant amount of new stock coming on stream in the Ballito area. Vacancies in eThekwini (Durban) are 10.5%, and 4.2% in Pietermaritzburg.

Area Vacancy Q3 2020 Vacancy Q4 2020 Vacancy Q2 2021
Cape Town 11.5% 17% 28.8%
Sandton 19.2% 22.4% 26.7%
Midrand 13.4% 16.7% 20.2%
North Coast (KZN) 7.5% 7.4% 17.2%
Soweto 19.4% 18.6% 16.6%
Johannesburg 11.3% 16.4% 14.6%
Western Cape 10% 9% 14.4%
Randburg 18.3% 13.3% 14.3%
KwaZulu-Natal 13% 7.9% 14%
West Rand 7.5% 10.1% 13.8%
Atlantic Seaboard 12.4% 24.4% 13.3%
National average 11.4% 12.9% 13.1%
Southern Suburbs (CT) 13.4% 15.2% 12.9%
Gauteng 11.3% 14.6% 12.4%
eThekwini 19.4% 4.2% 10.5%
Ekurhuleni 8.8% 9.8% 9.1%
Tshwane 9.4% 12.6% 9%
Winelands 13.6% 7.1% 9%
Northern Suburbs (CT) 6.6% 5.1% 5%
Centurion 5.7% 15.8% 4.8%
Eastern Cape 10.4% 6.3% 4.3%
Pietermaritzburg 9.8% 6.8% 4.2%

* TPN did not publish a Q1 Vacancy Survey for 2021.

Dickens says “it’s a tenant’s market, an oversupply of vacant properties is driving down rental prices as tenants are in the position to shop around for a better deal”.

She adds: “Price sensitivity is a critical consideration and remains the most important aspect for a tenant, followed closely by security and then distance to work, schools and shops.”

COMMENTS   20

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I think the city and its planners should bear most of the blame for permitting too many new developments which are normally bought 75% by speculative investors.

So Correct AP: also off plan sales where the mix of units in the offering vary in price substantially so that lower priced units sell but expensive ones don’t ,thus jeopordising the entire project .

And if you do not allow new developments then you have low economic activity, low employment rates, a decaying city etc …

When are they developing Robben Island?
Such waste of prime land/rock

Disagree. Speculators would dry up fast if they couldn’t rent out their units for (some) profit.

So it must always be someone else’s fault – the greedy developer that’s now left with too many buns in the oven and the retarded speculator who did no market research other than… ” property always shoots to da moon” bare no responsibility for the mess they find themselves in????!!
This has f all to do with council. This is no nanny state.

CT city bowl and Atlantic Seaboard rentals were already declining pre-Covid. The bubble started bursting in 2018 after over-priced rentals in the previous 5 years. Covid just made it worse. When you get too greedy it will eventually bite you in the ass.

Yep. Around 2018 there were many developments advertising small apartments to buy at what amounted to R55,000 per square meter. Do the math on what rent you need to achieve after figuring in levies, rates and that eye-watering price. R2.2m for a bachelors….

Lol “to da moon “….

Oops, all the smug property poeples are feeling the burn, and it is only going to get worse when interest rates start climbing again and CoCT’s administered costs continue to rise without limit.

Property is a long term investment, in the short term it might burn a little, but in the long term it is a winner. Personally my tenants have not skipped a single payment, so not burning at all. I also sold my lowest return rental about 5 weeks ago for a very good price thanks to the pent up demand and low interest rates that buyers can get.

The usual BS from a Money guru. classic, when speculating turns bad you become a long turn value investor.

note: Even if the SP 500 drops 10%, a few stocks might be found to rise.

The longest inflation adjusted property growth study in Holland from 1600’s shows even the “best” property can return 0% over a few centuries.

A nice writu-up about the study. https://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-prices/

@casi_negro, so first off I am not a Money guru, second, the long tern studies are showing the average property value increase of all types of properties. Only certain types of property makes sense for renting out. Also, the study does not include rental income and tax deductions, which is kind of a big part of total return. Also, if you are still doubting property, in the USA the stock market returned 10.4% per year since 1994 and property REITs returned 9.5%, so definitely not 0%.

I’m not sure where casi_n is getting his/her info. His views are extremely naive.

Property GENERALLY tracks inflation or a bit more over the long run but this includes by-to-live etc.

Leverage and gearing (carefully) is where a lot of property value lies and you end up with assets paid for by other people.

I hope you factored capital gains tax into your sale. My view is that your concept was correct and is for some carefully selected property BUT with rising rates and taxes and ongoing ZAR depreciation plus the threat of EWC or the building next door being taken over by non-payers I think there is significant risk. And covid isn’t over yet. Disclaimer – I am a property owner.

@Paul Kearney, the risks you mention are very valid and is exactly the reason I offloaded the property. I personally prefer equity investments over property such as MSCI world trackers and long term treasuries of developed countries. So yes, I agree with what you said.

The bottom line is that gearing is supposed to be used only by the most sophisticated investors who have the ability to implement a strategy to minimize losses and control risks. Property investors had the option to invest in listed property, but the bank won’t finance the deal. The refusal of the bank to finance a listed investment forces the investor to gear his available deposit by buying a physical property when the rent will cover the bond – a no-brainer and a free investment……in theory.

Like all geared investment in financial assets, it works out well when the demand outstrips the supply. It is only when the tide turns when we see who is swimming naked. There is no risk-free opportunity to make money. The so-called lowest risk transactions and “sure bets” carry the most risk because the investor fails to identify those risks, and therefore, he cannot manage those risks. Many people became property millionaires by using the bank’s money out of sheer luck. Those who finance the transaction out of their own pocket take very little risk. The worst that can happen to them is they will get a disappointing yield, but bonds already offer a disappointing yield .

Exactly.
Rather own a property and make say 10k pm or buy some bond at a few %

All part of the cycle. The rest of the world is experiencing double digit property price rises while SA still in the doldrums. The positive is that we are slow to catch up but it will happen. The smart money is buying property distressed by the slump in rental. Those smug, fussy tenants will be laughing on the other side of their face in a few years when they can’t afford to buy and the rental demand returns to normal with prices adjusted for inflated property prices.
Unless they want to sleep under the foreshore flyover or sit on the N1 for hours to live in the boerewors curtain they will have to cough!

The headline references the City Bowl. There is a huge amount of stock coming to market there with Harbour Arch, One Thibault and many others – plus the likelihood that other commercial buildings will convert to residential. So it may take some years for that stock to be mopped up in the city bowl before we see a strong recovery.

The new developments are a temporary inconvenience to long term investors however they indicate the strength of the long term market which instigated such development in the first place. On top of this it makes buyers realize the value of older more spacious property compared to shiny new shoe boxes for a higher price and with sky high levies. Building cost inflation is very real.
After Covid the market will rebalance to the upside for the brave. If not we are all screwed anyway.

End of comments.

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