EThekwini South Africa Q2 2021 Real Estate Market
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South Africa Q2 2021 Real Estate Market eThekwini
Office Sector
1.70 million 15.4% 15.8%
Estimated stock Vacancy rate (all grades) Vacancy rate (prime grade)
P = -0.6% Negative,
R170 – R125 A = 3.9% cyclical
B = 1.8% downturn
C = 0.4%
Average prime Annualised Rental outlook
rental range rental growth
Industrial Sector
Negative,
R65 – R75 cyclical 5.2%-10%
downturn
Prime rent (Rand/m2) Rental outlook Prime vacancy rate
Hotel Sector
46% R 971 R 449
Occupancy (YTD) ADR (YTD) RevPAR (YTD)
Office sector
Overview
eThekwini’s office sector continues have been various success stories For landlords and investors alike, By segment, both premium a result of older premium stock activity at record low levels,
facing heavy headwinds, as rising of residential office conversions eThekwini’s office market remains (11.0%) and A-grade (2.9%) stock being reclassified. Despite the however, it is unlikely that
vacancy rates and compressed in the CBD, eThekwini’s dominant a daunting space to navigate, experienced an annual increase in oversupplied market, SAPOA’s much of this stock will come
rentals put landlords under commercial node of Umhlanga as uncertainty around economic volume. The growth in premium latest survey result suggests to market over the short term.
significant pressure. Office demand shows limited prospects for stability along with an industry-wide office space was attributed to that approximately 7,000 square Committed developments
dynamics have continued to soften alternative use initiatives. shift in corporate demand dynamics completions coming to market metres of new committed stock remain concentrated in the
as corporates look to scale down Emerging trends of smaller continue to place pressure on in the Umhlanga node, while the have been recorded. With demand Umhlanga/La Lucia and
on space requirements in line businesses migrating into the asset performance. It remains an rise in A-grade stock is primarily fundamentals and development Westville nodes.
with new work from home and peripheral suburbs have started opportune time for prospective
office rotational hybrid models. picking up traction, driven strongly tenants operating in eThekwini
The net effect is that office foot
count has declined significantly
by residential estates expanding
their service offerings through
to secure favourable long-term
lease arrangements.
eThekwini: office stock by grade & annualised change, 2021 Q2
from pre-COVID levels. While there sectional title office spaces.
1.00 15.0%
Office Stock (m2 Million)
0.78
0.80
10.0%
Stock Growth (%)
Supply
0.60
eThekwini has an estimated 1.7 is considered oversupplied, with a 100,000 square metres of prime 0.46 5.0%
million square meters of office stock flurry of new stock (130,000 square office space, concentrated in 0.40 0.36
at the end of the second quarter of metres) coming to market over the Umhlanga (90%) and Ballito (10%). 0.0%
2021, having grown at 2.5% over the previous 4-years. The metropolitan 0.20
0.10
last year. eThekwini’s office sector municipality is home to just under
0.00 -5.0%
P-grade A-grade B-grade C-grade
Office Stock Annual Growth
eThekwini: total office stock, 2018 - 2021 Source: SAPOA, 2021.
1.75 From an office conversion has seen effectively no residential a trend in outer-lying residential
perspective, we have seen many conversions taking place. This is estates marketing small office
Total Office Stock (m2 Million)
1.70
1.70 redevelopments take place in predominantly a result of most of spaces for sectional title ownership
1.66 the Durban CDB. This aligns with the node’s office buildings being or lease has emerged. This move
1.65 the 3.9% contraction recorded in relatively new, whilst an abundance towards targeting small scale private
C-grade office stock. There has of residential accommodation is businesses is likely to grow in the
1.60 1.59 been reasonable success, available in and around the area. future, to own or rent spaces close
1.57
particularly in the student and With high construction costs, to home. This corporate semigration
1.55 affordable housing segments. landlords are left with few options trend, albeit to a lesser degree,
to address vacancies in the key echoes what has started to emerge
1.50 In contrast, the dominant commercial node. With that said, across Johannesburg’s office market.
2018 Q2 2019 Q2 2020 Q2 2021 Q2 commercial node of Umhlanga
eThekwini
Source: SAPOA, 2021.
Performance
An oversupplied office market recovery, has resulted in marginal yet. Larger corporates, however, Rental concessions and installation have ticked up slightly over comes down to the general
combined with a shift in corporate positive net absorption of space. have started driving the trend in allowances being offered have the past year, annual growth performance of office portfolios
demand dynamics has seen Accordingly, eThekwini’s premium downscaling and consolidating not changed much over the last for listings remains sub-CPI, vis-à-vis how landlords view their
eThekwini’s office fundamentals office vacancy rate stands at 15.8% space requirements. With that said, 6-months. However, landlords have whilst achieved rentals confirm product offering compared to
come under severe pressure. at the end of June 2021 (down from larger office floor plates remain to remain aggressive in their lease negative reversionary movement what is available in the market.
The aggregate office vacancy 22.9% in Q2 2020). Similarly, challenging to acquire, as most arrangement to stay competitive across grades. Rental levels are In most cases, landlords would
rate stands at 15.4%, up by half a vacancy rates declined annually businesses adopt a “wait and see” in the tenant driven market. anticipated to continue softening rather secure a tenant paying
percentage point from the previous across C-grade office space, approach. As leases come up for Typical prime rentals have with rising vacancy rates. To avoid reduced rental rates than sit with
year’s second quarter. Vacancy rates as alternative use conversions expiry, however, we will likely see compressed from R190-R200/m2 sitting with empty buildings and completely empty office buildings
amongst A (19.7%) and B-grade (predominantly in the CBD) many companies downscale on plus to the R170-R175/m2 mark. compromising portfolio cashflows, in their portfolio. It remains an
(16.8%) stock increased by 8% and eased pressure on the space requirements to some However, evidence suggests that landlords are left with few option opportune time for prospective
14%, respectively. Interestingly, oversupplied segment. degree. Smaller office plates leases for the same class of asset are but to rebase rental levels to offer tenants to secure favourable long
premium-grade office space showed sprawled across buildings seem being signed in the R125-R155/m2 a competitive product to potential term lease arrangements.
substantial vacancy recovery on In general, increases in vacancy to be the most popular scale of range in certain instances. Therefore, tenants. The nature in which deals
an annual basis (31% reduction), rates have been driven by small spaces available in the market. although average asking rentals are being structured ultimately
albeit moving from a low base in pockets of office space being let Steady softening in office
2020, where the height of lock-down go throughout the metropolitan fundamentals presents excellent
municipality. Small and medium
restrictions saw a chunk of stock
let go into the market. Since then, businesses have shown to be unsure
opportunities for tenants well
versed in market-related deals
eThekwini: Average Gross Asking Rental by Grade, 2018-2021
incremental easing of restrictions, what the new corporate office model to sign into long-term
coupled with glimpses of economic will look like and have subsequently lease agreements. R250.0
been reluctant to give up space just
R195.0
R193.8
R186.7
R181.7
eThekwini: Vacancy Rate by Grade, 2018-2021 R200.0
R150.3
R144.7
Asking Rent per m2, Rand
R139.3
R138.7
R150.0
R116.3
R114.2
R113.5
22.5%
25.0%
R103.8
19.7%
18.5%
R100.0
18.0%
R71.3
R71.5
20.0%
16.8%
R60.0
R57.5
15.8%
15.6%
15.0%
13.8%
13.3%
R50.0
15.0%
12.1%
Rate (%)
10.9%
10.6%
10.2%
9.2%
10.0% R-
P-grade A-grade B-grade C-grade
2018 Q2 2019 Q2 2020 Q2 2021 Q2
3.5%
5.0% Source: JLL, 2021; SAPOA, 2021; Rode, 2021.
0.0%
P-grade A-grade B-grade C-grade
2018 Q2 2019 Q2 2020 Q2 2021 Q2
Source: SAPOA, 2021.eThekwini: Average Gross Asking Rental by Grade &
Annual Change, 2021 Q2
R250.0 4.5%
4.0%
R200.0 R193.8 3.5%
Gross Asking Rent per m2, Rand
3.0%
R150.3 2.5%
Rantal Change (%)
R150.0
R116.3
2.0%
1.5%
R100.0
1.0%
R71.5
0.5%
R50.0 0.0%
-0.5%
R- -1.0%
P-grade A-grade B-grade C-grade
Asking Rent Annual Change
Source: SAPOA, 2021; Rode, 2021; JLL, 2021.
Outlook
eThekwini’s office market is However, a similar conversion Sustained real economic growth,
anticipated to continue facing approach in commercial nodes particularly within the financial
steady headwinds for the remainder such a Umhlanga is less viable due and business services sector,
of 2021. The sector remains heavily to the abundance of residential will be critical to the long-term
tenant driven, with favourable accommodation in the area, not to path of recovery. Furthermore,
leasing deals attainable for mention the relatively new nature the successful scaling and roll-out
qualifying operators. The case of commercial buildings. With that of the COVID-19 vaccine coupled
for residential conversions said, fundamentals are expected to with accommodative monetary and
(particularly affordable and continue softening as uncertainty fiscal policy will be vital in restoring
student housing) of old vacant around lockdown regulations both local and international
office space is still strong in the CBD. and business continuity remain business confidence.
significant concerns for corporates.Industrial sector
Market Overview
While eThekwini experienced Larger premises exceeding 15,000m2 Large operators such as Massmart
significant traction in industrial have showcased quite the opposite continue to opt for new build
activity over the fourth quarter of trend, with stock sitting in the options. Interestingly, these blue-
2020 and the first quarter of 2021, market, unoccupied for 6-months chip tenant specification-built
momentum has slowed down or more. premises have shown incredibly
drastically over the last month of the resilient fundamentals, achieving
second quarter. Decision-making Consequently, there has been major rentals around R85-R90/m2.
processes have seemed to stagnate pressure on rentals over the last These specialised greenfield
as uncertainty in the market, 12-months, where existing rates on developments typically range
both from an economic and warehousing space have fallen as between 10,000-25,000m2 in size.
regulatory perspective, much as 15%-20%. Typical deals Unsurprisingly, momentum in the
grapple with business confidence. previously done at R75/m2 are now new build space has placed pressure
Unlike other port cities such as regularly being closed at R60-R65/ on fundamentals across existing
Cape Town, evidence suggests m2. Subsequently, rental escalations stock in the market. Trends suggest
that eThekwini currently houses have come under significant that large operators would rather
a fair amount of vacant stock, pressure, reduced to 6% and lower expand into new bespoke, uniquely
varying in location and size. in certain instances. Uncertainty tailored buildings. As a result,
Smaller industrial parcels (below around economic stability and there is a healthy pipeline of
5,000m2) have shown more resilient contractual risks has seen lease buildings under construction,
fundamentals, as available stock on periods shortened, with many and planned premises expected
the market continues to be acquired tenants pushing for 3, and in some to come online over the next year.
and occupied relatively quickly. cases, 2-year lease periods.
eThekwini: Gross Industrial Asking Rental, Average vs Highest Prime
R100.0
R90.1
R85.9
R85.9
R84.0
R90.0
R71.6
R80.0
Gross Asking Rent per m2, Rand
R62.7
R62.7
R58.9
R70.0
R57.0
R53.0
R60.0
R50.0
R40.0
R30.0
R20.0
R10.0
R-
2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2
eThkw Prime Mean eThkw Highest Mean
Source: Rode, 2021.Hotel Market
The second quarter of 2021 started holidays in December 2020. in the Durban market is particularly
with April registering the highest noticeable in the 4-star segment,
average national occupancy rates The Durban area has remained where upscale properties continue
of any month since the start of the destination of choice for the to appeal to an upper-income
the Covid-19 pandemic. At 40%, domestic leisure market. In fact, target market that has been
occupancy levels were nearly occupancy rates recorded during mostly unscathed by COVID-19
double the rate recorded in January the start of the second quarter have (in terms of economic impact)
and slightly higher than the previous come close to 2019 levels, whilst and that remain largely unable
peak of 37% over the summer ADR was also similar – even slightly to travel internationally.
higher during April. The strength
City of Durban Occupancy City of Durban ADR & RevPAR
Comparison: June 2020-2021 Comparison: June 2020-2021
50% R1,200
46%
45% R971
R1,000
40%
35% R771
R800
30%
25% R600
R449
20%
13% R400
15%
10% R200
R98
5%
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 eThekwini 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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