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Demand for office space in SA ‘weak’

28th February 2013

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Demand for office space in South Africa remained weak in 2012 amid challenging market conditions and extensive consolidation of companies, JSE-listed property group Growthpoint Properties CEO Norbert Sasse said.

He said the office rental sector of the group’s business lagged behind its retail and industrial divisions, with several major tenants vacating rented premises during the year – increasing office space vacancies to 7.1% from 6.7% in 2011.

Growthpoint did, however, outperform the national fourth-quarter 2012 office vacancy average of 10.6%.

Speaking at the group’s interim results presentation for the six months ended December 31 on Thursday, Sasse said office renewals also decreased from 72.6% in 2011 to 65.3% during the period.

“The second half will remain challenging, with vacancies under pressure; however, property fundamentals do remain stable,” he said, referencing relative stability in both the retail and industrial letting sectors.

In the retail division, growth in retail centre turnovers was slow, tracking contracted consumer spending, but retailer occupancy cost-to-turnover ratios remained within industry norms.

This was bolstered by several international retailers, such as Zara, Topshop and Cotton On, entering the South African market and occupying rental space at prime retails centres.

“Cost containment, however, remains difficult,” Sasse said, adding that the primary drivers of this were rising labour, administrative and utility costs.

Meanwhile, the group’s industrial division also experienced some challenges during the period, echoed by negative factory output data.

Continued increases in input costs, particularly electricity, had negatively affected the manufacturing sector and had placed pressure on renewal growth and lease periods.

“There is, however, increased demand for warehousing and distribution facilities over 10 000 m2 as consolidation becomes increasingly evident,” he said.

Vacancy levels in this sector had stabilised, and were expected to remain flat at around 3% for the near-term.

On Wednesday, Growthpoint announced a 14.9% increase in revenue to R2.86-billion, driven primarily by contractual rental escalations and an increase in revenue from its recent investment in Growthpoint Properties Australia.

In addition, it posted a 7.2% growth in distributions to 72.7c per linked unit for the six months ended December 31, 2012 – above the original market guidance of 6.1%.
The group’s market capitalisation was R43.3-billion at December 2012, with its net asset value up 4% to 1 677c per linked unit, providing a total return to investors of 19.4%.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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