Download Cape Town Office Market Outlook

Cape Town Office Market
Outlook
In association with Baker Street Properties
Q3 2015
Highlights
Investor confidence showed improvement in Q3 2015
from the first half of the year.
The overall vacancy rate increased slightly to 9.0% in Q3
2015. However, recent activity will see a reduction in the
next quarter’s vacancy figures once tenants, who have
just finalised leases, have physically moved.
Grade A accommodation recorded an average 6.4% y/y
increase in gross rental rates, with Century City
outperforming other nodes. The growing interest of
corporates may see a continuation of increasing rental
rates in the coming year.
Cape Town Office Market Outlook
2
Prime gross rent
167 ZAR/m2
per month1
Prime Yield
Vacancies
8.0%
9.0%
Total gross leasable area
(GLA)(‘000 m2)
2,445m2
12 month
outlook
Source: Baker Street, JLL, SAPOA
existing stock even with the higher
proportion of speculative
developments. Although a notable
improvement in development
activity, new office developments
will only account for a 3.0%
addition to existing
accommodation, allowing for
demand to catch up over time.
Supply
Investor confidence showed
improvement in Q3 2015 from the
first half of the year in the City of
Cape Town, with several projects
breaking ground that will reach
completion in 2016. Over
75,700m2 of developments will be
completed in the coming year. Of
this total, 68.0% will be speculative
developments, further highlighting
the optimism among investors.
Nevertheless, investors remain
cautious in the current economic
climate, gradually adding to
The sturdy growth in demand for
office accommodation, including
take-up in speculative
developments, is improving the
long term outlook of the Cape
Town market. Developments will
be added to three major nodes,
Other
13%
Cape Town
CBD
34%
Century City
27%
Waterfront
26%
Source: JLL, Baker Street
Cape Town Office Clock
Rental
growth
accelerating
Grade P
Grade A
The CBD in particular has been a
major attraction to large
corporates in 2015. Recent
developments include the start of
the KPMG building measuring
16,000m2 along with the 10,000m2
Touchstone House which is
nearing completion. These follow
the 8,000m2 development recently
completed for e.tv.
Table 1: Indicative development projects
Figure 1: Pipeline developments by node m2
Rental
growth
slowing
including the Cape Town CBD,
Waterfront and Century City, all of
which can be considered prime
nodes.
Rents
falling
Rents
bottoming
out
Development
Approximate
Size (m2)
Node
Opening Date
KPMG building
16,000
Cape Town CBD
Q3 2016
Touchstone
10,000
Cape Town CBD
Q3 2015
Silos
10,000
Waterfront
Q3 2016
The Apex
8,000
Century City
Q1 2016
Citadel
6,500
Claremont
Q3 2016
Gateway
6,000
Waterfront
Q4 2016
The Matrix
5,000
Century City
Q1 2016
The Pavilion
4,000
Waterfront
Q3 2015
The Annex
4,000
Century City
Q1 2016
Aurecon 2
3,200
Century City
Q2 2016
Grove Exchange
3,000
Claremont
Q1 2016
Recent Completions – Total 21,000m2
12 month outlook
Bridge Park, Century City 18,000m2
Waterview Park Four, Century City 3,000m2
Grade B
The JLL Property ClockTM
1 Prime
rent represents the top open market rent that could be expected for an office unit of the
highest quality and specification in the best location in a market, as at a survey date.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2015.
Cape Town Office Market Outlook
Demand
3
Figure 3: Rental performance by grade
Vacancies
As predicted, Portside, Cape Town’s
5 Star Green Star SA rated building,
has experienced more take up with
the latest tenant, EXL, taking an
entire 2,800m² floor.
Activity in the northern suburbs has
seen Pepcor taking additional offices
in Tyger Valley. This will reduce
vacancies even further in this node
and will be reflected in the next
quarter’s survey.
180
The overall Cape Town Office
vacancy rate increased slightly to
9.0% in the quarter from 8.2% in
Q2 2015. The increase is largely
attributable to the completion of
speculative developments in
Century City, resulting in a 12.2%
vacancy in the node from 6.6% in
Q2 2015. As already mentioned,
recent completions in Century City
have been well received with
ABSA Barclays recently finalising
lease terms.
In the CBD, the vacancy rate
remained unchanged at 11.7% .
There was an increase in Grade P
and A vacancies from a combined
11.1% in Q2 2015 to 12.3% in Q3
2015 while vacancies in Grade B
and C accommodation declined.
Nevertheless, this marginal
increase is likely to be temporary
as there is a clear growing interest
for high quality accommodation in
the CBD.
Figure 2: Cape Town office vacancy rate
12.0%
10.0%
9.8%
10.3%
11.2%
9.9% 9.7%
9.5% 9.3% 9.2%
8.2%
9.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2013 2013 2013 2014 2014 2014 2014 2015 2015 2015
Data: SAPOA
170
160
150
R/sqm
Recent activity will see a reduction in
the next quarter’s vacancy figures
once tenants, who have just finalised
leases, have physically moved.
Recent deals include ABSA Barclays
having taken 14,000m² in
Bridgepark, Century City.
Completion of new developments in
this node has seen the vacancy rate
increase. However, this is likely to be
temporary as Century City has also
enjoyed success in the marketing of
their sectional title offices with
approximately 95% presold.
140
130
120
110
100
90
80
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
Average Grade P
Average Grade A
Average Grade B
Data: Baker Street Properties
Tenants should be aware of this
change and position themselves
accordingly, as rental rates are
likely to accelerate in the coming
year.
Rental
Performance
The positive take up of offices is
starting to push rentals upwards
with quality office space continuing
to show growth. Although rental
rates for Grade P accommodation
remained largely unchanged with
a 1.0% y/y increase in Q3 2015,
these properties have maintained
a significant gap in comparison to
Grade A accommodation, well
over 20.0% higher in gross rental
rates.
Grade A accommodation recorded
an average 6.4% y/y increase in
gross rental rates, with Century
City outperforming other nodes
with a 10.9% y/y rise driven by the
completion of new
accommodation.
Outlook
The South African GDP outlook
forewarns of slower business
activity in the year ahead, with the
National Treasury having revised
the GDP growth downwards for
2015 and 2016. However, the
gradual recovery in demand for
accommodation in Cape Town is
set to see all nodes showing better
performance in 2016.
Investor confidence in the Cape
Town market continues to improve
in the hope of an economic
recovery. High quality
accommodation continues to
dominate the market while the
growing interest of corporates
bodes well for landlords with the
potential for increasing rental rates
in the coming year.
Recent Deals
ABSA Barclays 14,000m2, Bridgepark Century City
EXL 2,800m2, 5 star Green Star SA Portside building in Cape Town
Pepcor, Tygervallly
COPYRIGHT © JONES LANG LASALLE IP, INC. 2015.
Cape Town Office Market Outlook
About JLL
Cape Town Office Statistics
Table 2: Average gross rental/m² for Prime buildings
Q3 2014
Q3 2015
Q3 2015
y/y %
change
q/q%
change
City Centre
165
167
167
1.0%
0.0%
V&A Waterfront
165
167
167
1.0%
0.0%
Average Grade P
165
167
167
1.0%
0.0%
Q3 2014
Q3 2015
Q3 2015
y/y %
change
q/q %
change
City Centre
119
132
132
10.9%
0.0%
Century City
122
127
131
7.7%
3.4%
Tygervalley/Bellville
102
105
110
8.2%
4.8%
V&A Waterfront
165
167
167
1.0%
0.0%
Average Grade A
127
133
135
6.4%
1.8%
Table 3: Average gross rental/m² – Grade A buildings
Table 4: Vacancies by Grade, m2
For further information, visit
www.jll.com
JLL offices
Grade P
Grade A
Grade B
Grade C
Overall
Q3 2014
19.1%
6.1%
9.8%
26.8%
9.5%
Q2 2015
13.7%
5.4%
9.0%
20.7%
8.2%
Q3 2015
32.5%
5.5%
9.6%
18.6%
9.0%
Table 5: Future supply
2016
JLL (NYSE: JLL) is a professional
services and investment
management firm offering specialized
real estate services to clients seeking
increased value by owning,
occupying and investing in real
estate. With annual fee revenue of
$4.7 billion and gross revenue of $5.4
billion, JLL has more than 230
corporate offices, operates in 80
countries and has a global workforce
of approximately 58,000. On behalf of
its clients, the firm provides
management and real estate
outsourcing services for a property
portfolio of 3.4 billion square feet, or
316 million square meters, and
completed $118 billion in sales,
acquisitions and finance transactions
in 2014. Its investment management
business, LaSalle Investment
Management, has $57.2 billion of real
estate assets under management.
JLL is the brand name, and a
registered trademark, of Jones Lang
LaSalle Incorporated.
Completions
(m²)
y/y % change
Future supply
(m²)
y/y % change
75,700
161.0%
2,521,27
3.1%
Johannesburg
Office 303, The Firs
Cnr Biermann & Cradock Ave
Rosebank, South Africa, 2196
Tel +27 11 507 2200
Zandile Makhoba
Head: Research, South Africa
Johannesburg
Tel +27 11 507 2200
[email protected]
Dave Russell
Director: Commercial Leasing and
Sales
Baker Street Properties
Cape Town
Tel +27 21 461 1660
[email protected]
www.jll.co.za
www.jllpropertysearch.co.za
COPYRIGHT © JONES LANG LASALLE IP, INC. 2015.
This report has been prepared solely for information purposes and does not necessarily purport to be a
complete analysis of the topics discussed, which are inherently unpredictable. It has been based on
sources we believe to be reliable, but we have not independently verified those sources and we do not
guarantee that the information in the report is accurate or complete. Any views expressed in the report
reflect our judgment at this date and are subject to change without notice. Statements that are forwardlooking involve known and unknown risks and uncertainties that may cause future realities to be
materially different from those implied by such forward-looking statements. Advice we give to clients in
particular situations may differ from the views expressed in this report. No investment or other business
decisions should be made based solely on the views expressed in this report.