The country’s commercial property sector is taking a knock as more companies downsize their office spaces due to job losses and work-from-home options.
Nedbank is the latest corporate to announce plans to make a permanent work-from-home shift.
Industry experts believe other banks might follow suit. Nedbank said this week several of their staff will continue to work from home because of the COVID-19 pandemic.
The commercial industry says it is struggling to sell and rent office space as more companies scale down as a result of COVID-19 and work from home set-ups.
FNB Quarter One survey on commercial property, released earlier this year, showed that 40% of brokers surveyed revised their office space need and downscaled.
CEO of Galetti Corporate Real Estate, John Jack says “We have seen quite a significant trend particularly in the commercial office space – particularly offices not wanting to sublet and new tenants looking for more flexible terms and as these leases are coming up for expiry. The renewal of those leases are questionable and those leases are getting renewed at far lower rates. Tenants are coming and saying we were occupying a thousand square metres and we would now like to occupy seven square metres for example, and reducing their footprint of the space at the same time reducing rental per square metre.”
3Cube Property Solution’s, Bradley Ho shares the same concerns.
“Our experience on the ground has shown a decline in demand of office space across the board. In fact, we have experienced a 37% decrease in office inquiry since the lockdown early last year with the average size of these inquiries diminishing by almost the same amounts. The pandemic has accelerated these pre-existing trends and with many business owners seeing it is possible to achieve results with employees working from home. Commercial real estate owners are burdened with growing vacancies across their portfolios,” says Ho.
Property economist, John Loos, says many companies have adopted higher remote work trends for their employees and this has a huge impact on the commercial property market.
“There are those who try and deny that work from home is going to be such a big factor and that when COVID is over most people will return to the office. And then there are those who think the world has changed and we even saw articles of death of the office. I think the truth is somewhere in the middle,” says Loos.
“Work from home is more popular amongst many employees than many CEO’s it would seem in countries where surveys are done. And you can save on office space and infrastructure costs for the company. So many companies will embrace work from home and that over the next few years diminishes demand for office space,” adds Loos.
Loos says landlords and agents say they have to find different ways to get businesses to rent up spaces “for instance reducing or negotiating rates — some are remoulding their rental spaces to accommodate the new norm,” says Loos.
“So the landlords have had to come up with far more ideas on how to renew and attract tenants to their portfolio and they are offering flexible terms on the lease agreements. Another thing we have noticed in the office market particularly in Sandton you start to face downward pressure on your rentals, while if you look at Rosebank you don’t have a vacancy in that market. (Case 2) At the moment there seems to be quite an appetite for developers to purchase vacant office spaces and convert them to residential units, the same as retail real estate’s consumers move to online shopping,” adds Loos.
Loos believes the decline in demand for office space in 2020 was due to job losses and not work-from-home set-ups. However, he says property owners need to be innovative re-purpose their buildings.
“The obvious one which is being done in the old Joburg CBD is to repurpose into residential space. There are limits that in areas like Sandton or Cape Town CBD because surveys are pointing to very high residential vacancy rates. So I don’t think you can repurpose a lot of office space to high-end residential. The acceleration in the work-from-home trend, so more affordable residential repurposing of office space can possibly fly around those high-income business nodes such as Sandton and Cape Town and that will mean a significant change in income demographic.”
