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What’s bothering SA’s biggest landlords?

The office vacancies resulting from ‘consolidation, down-sizing, business failures and remote working’ – but that’s not all.
Changes to the way people shop are also shaking up the listed property sector. Image: Shutterstock

Office vacancies in the Sandton market are “likely to rise above 20%” from the 17% level in July, according to one of the largest property groups in the country, Redefine.

It and Growthpoint say there are clear behavioural trends reshaping the market post-Covid-19.

Together, these two listed property Reits (real estate investment trusts) own nearly 10 million square meters of gross lettable space. This – and the fact that both have diverse assets spanning the retail, office and industrial segments (and across regions) – means they are good bellwethers for the broader sector.

Last week, Growthpoint reported financial results for the year to June 30, while Redefine held its pre-close investor roadshow at the end of August.

Gross lettable area Growthpoint* Redefine
Retail 1.4 million m2 1.4 million m2
Office 1.7 million m2 1.2 million m2
Industrial 2.3 million m2 1.8 million m2

* Excluding 50% of V&A Waterfront

Redefine says that in the office segment “consolidation, down-sizing, business failures and remote working” continues to adversely impact demand.

“In addition, corporate restructuring is resulting in large amounts of sub-lettable space coming to market.”

Redefine expects vacancies to rise to as much as 2.544 million square metres across the country, which will see the national vacancy rate rise to 13.5%, from 12.3% in June.

However, it expects a trend towards the “co-working environment” as opposed to a structural and permanent shift to remote work as “load shedding and data instability hinder employees’ ability to work from home”.

Growthpoint says tenants remain “in a state of limbo with a nervousness to commit to new deals” but points out that this has the benefit of tenants wanting to stay in their current premises rather than move in this “uncertain environment.”

It says it is seeing an “increase in liquidations/business rescues with many tenants who were struggling prior to the lockdown unable to turn their businesses around”.

It adds that the full extent of the impact of Covid-19 and structural changes to the office and retail segments is unknown.


Both groups expect the trend of more business rescues, liquidations and tenant failures to occur in the retail sector as well, “which will increase vacancies”.

Read: Redefine reports ‘dramatic’ R400m increase in rental arrears

Redefine says because of Covid-19 and the “depressed economy, consumer behaviour is shifting at an accelerated pace to convenience”.

It believes “this is a structural change to consumer behaviour and spending patterns”. As far back as May (when it reported its interim results), Redefine made it clear that the “current preference of neighbourhood/convenience centres [was] becoming the norm”.

It also cautions that “consumers may permanently change their preferred buying channel for certain categories toward e-commerce”.

These factors will force changes in tenant mix at malls across the board.

It does say, however, that there was a “better than expected recovery in retail turnover, in particular apparel and fast food” post the hard lockdown.

Redefine says leasing activity is being driven by tenant retention initiatives and right-sizing retailers’ premises, resulting in negative rental reversions – in other words, lower rentals achieved for the same space.

Growthpoint says there is a trend towards short-term renewals at present, “with independents reluctant to commit and nationals taking advantage of the current environment”. It highlights the “value” category as best-performing, and has seen demand from value retailers at two of its malls in upper income areas.

Two further factors placing pressure on vacancies and rentals are “very little demand” for additional space from existing tenants, and “no new entrants”, says Growthpoint (The V&A Waterfront, which it reports on separately, remains resilient, with “an encouraging pipeline of interested prospective new tenants”.)

The days of Cotton On or H&M mopping up massive amounts of space are over, while unprofitable vacated Edgars and Jet stores that are not part of the business rescue transaction will weigh on many landlords.

Earlier this year, Redefine was blunt in its assessment of the market: “Struggling malls will no longer be relevant and possibly shut down.”


Growthpoint says its industrial “tenants are under pressure, particularly those that manufacture, tenants involved in the supply chain, and those dependant on the hospitality and construction industries”.

It says it has “seen many business failures” and expects many more tenants to “not make it.”

Redefine says Covid-19-induced “operational restrictions are driving warehouse reconfiguration and automation, including sectionalising merchandise, one-way traffic flow, and zoned shift-times for workspace and pause areas”. This could potentially see tenants look to reduce excess space over time.

It says there is pressure from tenants to sign shorter leases, and “market rentals remain flat while municipal tariffs continue to rise”.

It cautions that vacancies are expected to rise – “particularly in secondary nodes impacted by failing municipal infrastructures”.

Interestingly, it highlights that third-party logistics operators are moving from “industrial big box formats” to “establish last mile infrastructure for e-commerce order fulfilment”. This has seen these operators take up space in “other asset classes such as CBD office buildings and converted retail space”. One high-profile example of this is Takealot’s pickup points.

Luister na Ryk van Niekerk se onderhoud met Growthpoint uitvoerende hoof Estienne de Klerk:

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Some landlords are not telling it as it is, suggesting a proper bounce back but where the truth is they are still in legal disputes with tenants over unpaid rentals from Q2 in what is chaos.

Also, it’s not just ‘secondary nodes impacted by failing municipal infrastructures’. Johannesburg, Durban, East London and PE are very much dysfunctional and are basically unbankable while CT is looking and feeling like a different country that is much more functional.

In most ANC controlled towns and cities there is intermittent water and electricity thanks to many years of ANC corruption.

I have to agree…we’re a tenant with growthpoint. Will def run far away from them when our lease ends. They’ve been borderline rude in their engagements with us and our fellow tenants in the building. Willing to bet none of the current tenants will be there 5 years from irrespective of their going concern status…

the time will come when office space will be converted into apartments

What else to do when companies realise people are best suited working from home?

Experts predict more pandemics in years to come

Interesting times we live in!

I think SA property might be worth a punt.

This working from home thing does NOT work in SA. Soon employers will realize that it is in fact probably a health risk to employees and the sooner they get back to working from an office the better.

An example is Old Mutual. This lot has come to a standstill and seems to be under the impression they can resolve their issues with “artificial Intelligence”. Well in their case it is DEFINITELY not working. Just not intelligent enough. Cant get hold of anyone on a phone.

Buy when the blood runs in the streets. There has to be some value here??

Fully agreed regarding working from home not working in SA. Some of our larger customers (wholesalers) are still doing this and it’s complete shambles. Where previously they were well-run organisations with good structures/systems it’s now falling apart – the right hand does not know that the left hand exists!

“Struggling malls will no longer be relevant and possibly shut down.”

Mall of Africa comes to mind. Maybe the owners will convert it to residential, but will exacerbate the oversupply problem there too.

Property sector is going to crash.

Nice call. With the listed property down some 70-80% over the past 3 years you are calling for a ‘crash’!

Nice call. With the listed property down some 70-80% over the past 3 years, you are calling for a ‘crash’!

New malls don’t need sense. I hate them. My partner hates then. Parents hate them. And if I had kids I’d make them hate them. Here in Auckland park we are flanked by two places to shop: Rand Steam (newer, not mall) and Campus square (recently extended and refurbished, mall). Rand stream makes more sense as when switching stores you do it outside. It’s also easy to navigate and safer.

End of comments.





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