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Growthpoint: Office market will never be the same due to Covid-19

New developments ‘on hold’ for a number of reasons, including lack of tenants.
Growthpoint’s R1.2bn 144 Oxford Street office development in Rosebank was completed in February 2020. Image: Supplied

The office market will never be the same because of the impact of the Covid-19 pandemic in forcing many people to work from home, says JSE-listed Growthpoint Properties.

It also warns that the feasibility of new property developments is being eaten away by administered costs, which makes committing to investments in new projects extremely difficult.

Growthpoint chief operations officer Engelbert Binedell said Growthpoint developments are “on hold” for a number of reasons.

“There aren’t tenants. The economy is in such a poor state and there has been such a big overhang of developed space that our developments are on hold unless it’s a slam-dunk deal with a client or in the hospital- or student residential space,” he told the Consulting Engineers South Africa (Cesa) Infrastructure Indaba last week.


Binedell said the cost of occupancy is impacting Growthpoint’s rentals across all of its sectors as a result of increased administered costs because “tenants can only pay so much”.


He said if a prospective tenant can only afford to pay R100 a square metre and 60% of that goes towards administered costs, such as rates and taxes, electricity and water usage charges and Construction Industry Development Board (CIDB) levies, “it makes the feasibility for new developments almost impossible”.

Binedell said Growthpoint, as a property owner, wants and needs as many people as possible back at their offices, but the reality is that a lot of people can do their jobs from home and prefer to work from home.

There has also been a huge overhang in developed office space and vacancies are at an all-time high, which is very concerning, he said.

But Binedell said if the economy grows at the rates that are projected, there will be a slow take-up of that space.

“But certainly the construction industry and property developers have had to reset their thinking in terms of when to trigger a development or not,” he said.

The human factor

Binedell said for some people, their jobs entail them collaborating with other staff members and those people “certainly have a longing to come back to the office”.

He added that from a Growthpoint perspective, the number of its employees with stress-related concerns and depression has picked up significantly because of “this very strange and difficult environment”.

“Very often your office is that family away from home, so that collaboration is very important,” he said.

“Not everybody can afford a house with three bedrooms with a garden where you can take a break when you are tired.

“If you are stuck in a one-bedroom flat on the third floor and you have to eat, sleep and work in the same space, it is just not conducive for good mental health and certainly not for productivity.

“Those people have a wish and a longing to come back to the office.

“But you are going to [have to] change the office. It’s going to have to be a better space, a nicer space, an entertaining space for people to come back to,” he said.

Hybrid model

PwC chief economist Lullu Krugel said the property market is unfortunately not out of the woods yet and has not figured out what things will look like in the future.

Krugel said the good thing is that people are slowly but surely returning to their offices, but everywhere it is a hybrid office model.

Read: Seismic shift as Nedbank moves to hybrid work-from-home model

“We want to be able to work from home sometimes and to be able to come into the office on others. That will definitely happen.

“But I don’t know if it will ever go back to what we have seen before. It looks unlikely at this point of time that we will have people spending five days a week in the office,” she said.

Not all doom and gloom

Erwin Rode, CEO of property services firm Rode & Associates, previously told Moneyweb he believed the impact on the commercial property sector of employees working from home is probably being overestimated

“It’s not as if 50% of people are going to work from home in the future.

“My guess is that not more than 20% of people who previously worked in the office will still work from home after the pandemic,” he said.

Rode also questioned the sustainability of companies allowing their employees to work from home.

“It’s all very well to work from home while you know your staff and they know you and your company culture but as people resign and you appoint new people and they start working from home, it’s more difficult to create a company culture and train people,” he said.

‘Absolutely exorbitant’ costs

Binedell referred to the impact of the “absolutely exorbitant bulk contributions” that need to be paid on the financial viability of new projects.

He said Growthpoint pays about R1.2 billion in rates and taxes to local authorities a year, about R1.4 billion in electricity charges, R128 million for water usage and R5 million in CIDB levies.

He said Growthpoint has also made investments to create 11 000 megawatts (MW) of solar energy, which is growing and its target is to increase this to 20MW.

It costs Growthpoint R25 million a year just to keep its buildings running. It has had to sink 77 boreholes where there was insufficient water to service its particular properties; and has had to make a seven-year commitment to its insurers to upgrade tanks at a lot of its properties where the water pressure provided by the council is insufficient.

“Then you can add on a multitude of other risks. If it’s not Covid-19, it’s Eskom. If it’s not Eskom, it’s looting.

“With [regard to] the lack of skills, people are emigrating and people are semigrating to other areas. The concerns and risks are just becoming increasingly more difficult,” he said.

Infrastructure an issue

Binedell said infrastructure to a very large extent has already failed, although there are pockets of excellence.

He said in certain geographic nodes and certain towns you can see that things are working and you can see that is where investment is flowing towards.

Binedell said Growthpoint has disinvested from nodes where it has had problems with infrastructure, which is unfortunate, but it found it impossible to manage its properties because of infrastructure challenges and the cost of occupation becoming increasingly more expensive.

He said Growthpoint would like to engage even more with local authorities and those people who are responsible for infrastructure because it believes that by working together they can make a difference.

“We have reached out because our skills are available, but it seems to be a very one-way conversation, which is slightly disappointing,” he said.

However, Binedell said Growthpoint remains optimistic – and because the economy is coming from a low base, believes there are still fantastic opportunities going forward.



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As work-from-home becomes permanent, this will result in hundreds of empty office buildings. Those empty building’s should be used for social housing.

This is a once in a generation opportunity, to provide homes for people living in the informal settlements. Companies like Growthpoint, Redefine etc. would accept cents on the rand for these white elephants.

They might, but the state will soon abandon supplying any decent services to those buildings. Then we’ll have a few more buildings like in the jhb cbd. The SOEs are able to provide services to the likes of Growthpoint who are paying, imagine the levels when the owners have little to no income.

Gov needs to fix its own infrastructure first or let the private sector do it.

Good description of the realities of a landlord. Economy down with little change for the better in sight , high costs of rates and taxes , expensive and sporadic electricity supply , huge stock of empty space.
But – not to worry – the frog boiler has a vision and another plan…

In some toxic office environments, your office is that waring tribw away from home, so Covid-19 and working from home is a godsend,

It’s been good for a reset.

The virus is innocent of this accusation, the guilty party is the political science that prescribed the endless lockdown. Find 6,700 doctors to agree.

Looking forward to our rental contract ending, and never having to deal with Growthpoint again. Their relief offered to select tenants did not extend to all tenants. We were treated like criminals for asking for relief during the first few months of covid lockdown. The wheels turn, they’ll be grovelling for us to stay on as we’re now the largest tenant left in our building….

No worries in the current economic climate, they building a brand new white elephant in Cape town CBD called Harbour arch to follow suite.

Working from home is not going to work because customers suffer. Now the standard excuse for poor service is that some of our employees are working from home.

Another consideration is the poor quality of calls which often sound muffled when you are connected to someone working from home. On numerous occasions calls don’t even get connected on the first attempt after selecting the department numerically.

End of comments.



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