Cape Town South Africa Q2 2021 Real Estate Market
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South Africa Q2 2021 Real Estate Market Cape Town
Office Sector
2.65 million 12.9% 17.1%
Estimated stock Vacancy rate (all grades) Vacancy rate (prime grade)
P = 0.6% Negative,
A = -3.5% cyclical
R180 – R220
B = -8.0% downturn
C = -10.4%
Average prime Annualised Rental outlook
rental range rental growth
Industrial Sector
Negative,
R75 – R85 cyclical 5.5%-10%
downturn
Prime rent (Rand/m2) Rental outlook Prime vacancy rate
Hotel Sector
29% R 1,094 R 316
Occupancy (YTD) ADR (YTD) RevPAR (YTD)
Office sector
Overview
The City of Cape Town has seen has forced many corporates to complex space to navigate, as weak Cape Town’s office composition has been reported over the same (32%%), the CBD (31%) and V&A
its historically robust office sit on their hands, erring on the economic fundamentals along with remains A-grade dominated, period. Premium grade office Waterfront (28%). There is currently
fundamentals erode significantly more conservative side of space an industry-wide shift in corporate though the segment has space grew by 7.5%, a result of over 213,000 square meters of prime
over the last year. Vacancy rates requirements, delaying (re)location demand dynamics continue to place experienced a marginal contraction completions in both the CBD office rentable area, with more than
have steadily risen, as corporate decisions. As office fundamentals pressure on asset performance. (-0.5%) over the last 12-months, and Century City. 36,000square metres of unleased
consolidations and the rise in work continue to come under pressure, It is, therefore, an opportune time as the dated stock has been space (SAPOA, 2021).
from home result in more space we see increased interest in the for prospective tenants operating downgraded. Consequently, Cape Town’s prime office space
being given up in the market. alternative use of space. From a in the City of Cape Town to find a rise in B-grade volumes is concentrated in Century City
Uncertainty around economic landlord and investor perspective, great quality commercial space at
stability and lockdown regulations Cape Town’s office market remains a incredibly competitive rates.
City of Cape Town: Office Stock by Grade & Annualised
Change, 2021 Q2
Supply
The City of Cape Town has of 0.5%. Although approximately Current development activity 2.00 8.0%
approximately 2.65 million square 12,000 square metres of committed remains at record low levels. It is
metres of commercial office space, office developments have been anticipated that the only drivers
Office Stock (m2 Million)
1.48 6.0%
1.50
predominantly clustered in the CBD reported in SAPOA’s latest survey, of stock change will be conversions
Stock Growth (%)
(39%), Bellville (22%) and Century these are unlikely to reach fruition over the foreseeable future. 4.0%
City (14%). The city has experienced until a sustainable level of recovery 1.00 0.84
annualised office stock growth is achieved in the sector. 2.0%
0.50
0.0%
0.21
0.12
City of Cape Town: Total Office Stock, 2018-2021 0.00 -2.0%
P-grade A-grade B-grade C-grade
Office Stock Annual Growth
2.66
2.65
2.65 Source: SAPOA, 2021.
Total Office Stock (m2 Million)
2.64
2.64
2.63 2.62
2.62
2.61
2.60
2.60
2.59
2.58
2.57
2018 Q2 2019 Q2 2020 Q2 2021 Q2
City of Cape Town
Source: SAPOA, 2021.
Performance
Cape Town has shown the The banking sector is one of the Flex office operators remain under As Cape Town’s office vacancy rates While P-grade office rentals saw a However, the softening of rentals
most rapid softening in office major corporate contributors to pressure, as many occupants rise across all segments, rental levels marginal rise (0.6%) in the second may see businesses trade up from
fundamentals of South Africa's space being given up through using these spaces have been continue to erode as landlords are quarter, rates are likely inflated by older stock to premium and A-grade
major metropolitan cities, downscaling and consolidations, able to pack up shop and work left with few options but to become listings of completed developments space. Although this will likely
with aggregate vacancy rates where work from home trends has from home. However, it remains a increasingly aggressive with their recently coming to market. improve occupancy levels amongst
increasing by 44% on an annual reduced the need for traditionally challenge to quantify the degree concessions offered in the market. These rentals are unlikely to be investment-grade office stock,
basis. The city’s aggregate vacancy large floor plates. Nodes including of stress faced by these buildings, Annually, A and B-grade office achieved in real terms, as signed negative rental reversions
rate reached 12.9% at the end of the the Waterfront and Century City as the short-term and nuanced rentals contracted by 3.5% and leases are often recorded at levels will inevitably reduce landlord
second quarter due to deteriorating saw significant vacancy pressure nature of lease agreements makes 8.0%, respectively. C-grade office as low as 20% or more below asking. income returns.
occupancy rates across premium, as a result of consolidation trends. periodically measuring occupancy stock fared worst, with rentals The oversupplied, tenant driven
A and B-grade stock. Premium grade Historically, Waterfront vacancy rates unreliable. While these spaces declining by 10.4% over the market will likely see rental levels
office space vacancy levels reached rates amongst investment-grade are technically occupied as the flex last 12-months. continue rebasing downwards.
17%, up from 3% in the previous office stock hovered around the operator has signed a lease with the
year’s quarter. The CBD saw the 2% mark; however, a flurry of landlord, true occupancy rates
largest decline in buildings with
vacancy rates below 10%. Only half
quality stock being let go into
the market saw second-quarter
(i.e. foot traffic in the building)
are not reported. This echoes the
City of Cape Town: Average Gross Asking Rental by Grade, 2018-2021
of the buildings in the node have vacancy rates reach 12% (P-grade) shadow vacancy crisis most office
vacancy rates of 10% or less. and 22% (A-grade). Similarly, buildings are faced with, whereby
R250.0
The deterioration in occupancy Century City suffered significant actual vacancy rates may be as
R206.4
R204.7
R203.5
R202.0
levels has been driven by office vacancy pressures, with premium- much as 15%-20% higher than
demand dynamics shifting grade vacancy rates increasing levels reported. In newer,
R171.9
R169.7
considerably, as many corporates from 1% to 12% over the equivalent unlet buildings, certain landlords R200.0
R166.0
R156.9
continue to scale down on space period. Over the medium term, have started fitting these spaces
requirements in line with new work we will likely continue seeing this out, occupying sections at their
R130.5
Asking Rent per m2, Rand
R127.6
from home and office rotational trend of vacancy rates moving out own cost to create an attractive
R119.9
R120.0
R150.0
hybrid models. as leases come up for expiry. space to entice new tenants.
R104.7
R104.4
R97.4
R93.5
City of Cape Town: Vacancy Rate by Grade, 2018-2021 R100.0
25.0%
R50.0
20.4%
18.1%
20.0%
17.1%
16.7%
R-
16.1%
16.1%
P-grade A-grade B-grade C-grade
2018 Q2 2019 Q2 2020 Q2 2021 Q2
15.0%
Source: JLL, 2021; SAPOA, 2021; Rode, 2021.
10.2%
9.9%
Rate (%)
9.7%
9.5%
8.1%
10.0%
6.5%
5.8%
4.5%
4.1%
5.0%
2.7%
0.0%
P-grade A-grade B-grade C-grade
2018 Q2 2019 Q2 2020 Q2 2021 Q2
Source: SAPOA, 2021.
City of Cape Town: Average Gross Asking Rental by Grade & Annual
Change, 2021 Q2
R250.0 2.0%
R 204.7 0.0%
R200.0
Gross Asking Rent per m2, Rand
R 166.0 -2.0%
Rantal Change (%)
R150.0
-4.0%
R 120.0
-6.0%
R100.0 R 93.5
-8.0%
R50.0
-10.0%
R- -12.0%
P-grade A-grade B-grade C-grade
Asking Rent Annual Change
Source: SAPOA, 2021; Rode, 2021; JLL, 2021.
Outlook
It is anticipated that office vacancy many corporates may opt for their is more comfortable engaging
rates will continue shifting upwards, employees to stay safe and work in the same physical spaces,
placing negative pressure on rentals from home where possible. the collaboration and business
for the coming 12 to 18-months. Furthermore, the third wave and continuity benefits of working in
The overall office market will likely new level four restrictions will formal office space will see a steady
see a steady trend in negative net support working from home over return to the office. With that said,
absorption until such a time as the the short term, minimising person there will be a shift in the way the
country achieves some level of herd to person contact. The country’s office is used, with daily foot traffic
immunity against COVID-19. A rapid inherent unstable power supply, unlikely to reach pre-COVID levels.
increase in the vaccine roll-out is however, makes working from home The hybrid model incorporating flex,
required if this is to be achieved challenging. We anticipate that once traditional and home-based setups
in the medium term. However, the vaccine roll-out has reached will see the office space being used
until this is achieved, sufficient scale and the labour market more effectively.Industrial sector
Market Overview
While Cape Town’s industrial sector range, looking to build mini-unit data centre space, driven by the
has seen little change in activity developments. This aligns with e-commerce boom and the rapid
from the first quarter of 2021, MSCI's industrial vacancy trends, digitalisation shift across business
landlords have started firming whereby smaller lots experienced industries. Amazon Web Services
up their rentals. The resilience in a contraction in vacancy levels is an example of a major operator
industrial fundamentals (particularly over the last year, driven by currently active in this space.
amongst specialised quality assets) medium-scale consolidations and
has been driven partly by the local increased investor appetite. This is Prime logistics stock is currently
market beginning to run into stock evidenced by vacancy rates across recording average gross asking
issues as various tenants pursue box sizes smaller than 2,500m2 rentals of R75-R85/m2. The lower
up-scaling operations. At the tightening to 5.6% (annualised end of the market (R40-R45/m2)
same time, investors continue to contraction of 15% from the remains in older industrial areas
showcase a keen interest in taking previous year). Across Cape Town’s such as Blackheath. Market
advantage of the enticing buyers’ larger industrial spaces, developers evidence suggests that escalation
market. Accordingly, the market is continue to break ground. Examples rates between 6-7% are being
starting to see multiple enquiries of operators leading this trend achieved on leases. Vacancy levels
from blue-chip tenants looking for include Takealot and WeBuyCars, have moved outwards marginally,
quality stock with 10-year leases who continue to expand their placing pressure on rentals,
in place. warehousing and distribution particularly across the older existing
networks across Cape Town. stock. The growing appetite for new
There has been a pickup in appetite There has been growing activity builds tailored to specification has
by developers to purchase smaller in the telecommunication and seen rentals remain firm on higher
land parcels in the 1,000-1,500m2 quality, specialised assets.
City of Cape Town: Gross Industrial Asking Rental,
Average and Highest Prime
R120.0
R105.7
R100.0
R80.8
R80.8
R79.6
Gross Asking Rent per m2, Rand
R76.1
R80.0
R53.5
R52.8
R51.5
R49.4
R60.0
R42.5
R40.0
R20.0
R-
2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2
CCPT Prime Mean CCPT Highest Prime
Source: Rode, 2021.Hotel Market
The second quarter of 2021 started most affected sub-markets While it is tempting to interpret
with April registering the highest in the province, particularly its this as the start of a meaningful
average national occupancy rates 5-star segment that relies heavily recovery, one has to acknowledge
of any month since the start of on international visitors. It is, the impact that ADR has in inducing
the COVID-19 pandemic. At 40%, therefore, interesting to note that this increase in demand. The Cape
occupancy levels were nearly when comparing occupancy levels Town market and the 5-star segment
double the rate recorded in January during the second quarter of 2021 have experienced the greatest ADR
and slightly higher than the previous with those toward the end of 2020, declines of any market in South
peak of 37% over the summer these markets record a more Africa during the six months since
holidays in December 2020. significant improvement in the end of 2020. This has increased
occupancy than almost all other the competitiveness of the market
Having consistently recorded the sub-markets in South Africa. and its attractiveness as a holiday
lowest occupancy rates since the This improvement also occurred destination for domestic tourists
start of the pandemic, the Western in the two months leading up to – albeit at the cost of RevPAR
Cape has been the hardest hit winter, typically when occupancy performance for the hotel sector.
hotel market in South Africa. rates decline throughout the
Cape Town has remained one of the Western Cape.
City of Cape Town Occupancy City of Cape Town ADR & RevPAR
Comparison: June 2020-2021 Comparison: June 2020-2021
35% R1,200
R1,094
30% 29%
R1,000
25%
R800 R721
20%
R600
15%
11%
R400 R316
10%
5% R200
R82
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 Cape Town 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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