“If we have data, let’s look at data. If all we have are opinions, let’s go with mine”
Jim Barksdale, CEO of Netscape
As we know, data is the oil that the commercial real estate (CRE) industry runs on. Sandton’s office vacancy numbers are wide-varying, and these different opinions are a source of industry inefficiency. President Ramaphosa’s Thuma Mina speech spoke to us here – now over one long year of hard work later, we can “lend a hand”.
In summary: Sandton may be more vacant than people assume…
The good news: the fundamentals for Sandton, one of the jewels in South Africa’s CRE crown, are strong. The city improvement district is well-functioning, and rail transport is a large positive. Further, few major office supply-adding developments are planned, and hotel and residential projects to densify the node are afoot, bringing the pillows of workers nearer. This is all good for office demand over the medium to long term.
Definition of Sandton
Firstly, what is Sandton? For the purpose of this exercise, Sandton is defined by the following shape (polygon) – image below.
Click the button immediately below if you want to view our definition of Sandton (to view, you will need Google Earth on your machine. If you don’t have Google Earth, the button to download it is alongside)
The above shape, straddling the 9 suburbs detailed above, and totalling 510 hectares in extent, contains 322 properties.
More detailed commentary on the Sandton definition and image¹ is available in the Notes section below. (For interest’s sake we have added % office vacancies² per suburb to the graphic.)
Specific exclusions from the geographic definition of Sandton for this exercise: properties in the western range of Parkmore, Abland’s Sandton Gate development, the bulk of Morningside in the north, Kramerville in the north east, and the M1 highway to the east.
Here are the numbers
Definitions for “Total rentable office space”³, “Total area available for leasing”⁴ and “Total space coming onstream”⁵ can be found in the notes section of this article. In simple terms, total area available for leasing can be understood as the answer to this question: assuming a theoretical spike in demand and frictionless occupation, how many square meters could incoming tenants sign to occupy within 3 months?
This 21.8% (current state) Sandton vacancies score falls within the estimated opinion range of 15% to 25%. It is higher (due largely to differences in the definition of area available for leasing) than the vacancies score for comparative nodes such as
Comparative data explanation
MSCI Real Estate, SAPOA Office Vacancy Survey 2018 Q4 December: Vacancy rate – Area Available For Leasing (please note, unlike above, this excludes unlet development)
Unpacking vacancies by grade
Not all space is the same. In the graphic below, Sandton vacancies is broken down by grade (“quality” to CRE industry outsiders)
Asking gross rentals
The above term is exactly that – what the landlord is asking. In periods of higher demand and lower supply, rentals are concluded at asking levels. In softer environments, landlords may look to structure leasing agreements, resulting in rentals below asking.
Gross rental⁶ is defined at the foot of this article.
Our assessment: “A grade” space in Sandton appears, on the surface, to hold strong value for tenants. P grade space’s relatively higher price is due to it delivering higher office space efficiencies, more generous parking ratios, and reduced utility costs (electricity and water).
Comparative nodal information on rentals can be found below
Source: Rode’s Report 2018:4 Office rentals
Timing of vacant area coming onstream
This image talks to new supply coming onstream in future. Only on risk / confirmed developments are displayed below. Tenant-driven developments are excluded.
From the chart below, Sandton property owners are exercising prudence in holding back on future “on-risk” developments, therefore not releasing further supply into the market.
The “now” date is 1 March 2019. Thus 0 to 3 months refers to all vacancies coming onstream before end of May 2019. 3-6 months is all space coming onstream from June to end of August 2019.
Note: No reliable information on the Leonardo development’s rumoured 12K sqm office currently in development could be obtained . This 12K sqm office space (assumed in parts to be partially let, unlet, sold or available for sale via sectional title) – affecting the following categories: space in development coming onstream, total rentable area, and area available for leasing – has been excluded from this report.
The follow table provides all known leasing deals greater than 1,000 sqm, concluded in Sandton from 2018:Q3 onwards. To emphasise, this excludes the majority (by count) of leasing deals closed for space smaller than 1,000 sqm.
The above excludes certain significant deals underway, but not disclose-able.
For more information on the brokered deals above, you can contact the relevant industry professionals below:
Accreditation and thank you
Firstly, a big thank you to all unmentioned CRE professionals who have assisted with their valuable time, experience and knowledge in this project, you know who you are.
Thank you to Matt Crawford of Broll for providing detailed information on private stock and shadow space (sub-lease opportunities), and stress testing the accuracy of granular vacancies data. Thank you to Angus Alexander of Excellerate, for corroborating shadow space, unpacking concealed space and providing valued market insights.
The valuable comparative data provided by MSCI / SAPOA and Rode is acknowledged and appreciated. As is the calibration of our term definitions and “acid testing” of our logic – thank you Kerry Millar of RealFMG.
We have done our very best to ensure complete accuracy. However, in the instance of omissions or errors, these are all our own.
Gmaven processes 95% to 100% of public domain vacancies (inventory) in South Africa – at present an operationally intimidating 6.4M square meters of vacant leasable area. As is obvious above, this data is aggregated and anonymised for consumption by third parties and industry outsiders. However, for professionals familiar with the Gmaven system, all data is stored at appropriately high levels of granularity (from tenant installation allowances, to escalations, to complex spaces, to breakdown between expense types and obligations).
All vacancies are stored within properties, and all properties are assigned, among approximately 800 other fields, fields such as a property grade, total rentable area, primary property category and co-ordinates. Every vacancy is time-stamped, and all data is stored within and queried from a data warehouse. All data in this warehouse is subject to rigorous data validation and exception management. Further, all vacancies data is tested for duplication property fund side. This necessary (but misleading) practice by property funds has arisen because certain broker vacant space search algorithms / data structures do not handle sub-divisible or combinable units.
For those technically inclined, we run a data vault warehouse which feeds into a Ralph Kimball warehouse. The data is queried through an OLAP service.
¹ Sandton geo definition.
Polygons inevitably will cleave suburbs (i.e. will not always include suburbs in entirety). The “casualties” (cleaved suburbs) in this definition of Sandton are Morningside in the north, Strathavon in the north-east, and Parkmore in the west.
² Office vacancy
Office vacancy % = office space available for leasing divided by built office space’s total rentable area. The time parameter is from now to 3 months inclusive.
³ Total rentable office space
Means the total area available for occupation, within 3 months, of all office properties. This excludes those properties ear-marked for redevelopment to hotel or residential (there are a few), or those sites where development will be user-triggered.
⁴ Total area available for leasing
This definition is important. It is defined as all space (currently built or in development) available or becoming available for rent in the next 3 months.
Leasing processes can take, on average, 6 months from commencement to conclusion. Consistent with this, it is our opinion that space, not available immediately, but falling within the now to 3 month availability window ought to be considered for inclusion into total area available for leasing. For purposes of this report, 17,517 sqm of this space is included in the 456K sqms.
The above includes:
- Space to let by landlord,
- Space becoming vacant as tenants terminate leases,
- Shadow space (such as sub-leasing opportunities)
- All space becoming available for rental after 3 months,
- Space due to be occupied (high probability) by tenant/s arriving from outside of Sandton,
- Tenant-driven development sites,
- Small space that is not distributed to brokers or the public for leasing,
- Space that is leased from the landlord for purposes of flexible office space (but, in the on-leasing of such space, flows back into the vacancy pool) , and
- Space that is currently under-sweated from a space efficiency ratio (i.e. acting as a “shock absorber” to increased demand). For example: a tenant is occupying 1,000 sqm with 45 staff. If their staff complement increased to 60, this example tenant could accommodate this increase in staff within their existing 1,000 sqm
There is a grey area between Rentable Area (offices, support area lobbies, circulation space common areas) and Supplementary Areas. While balconies, storerooms and parking bays can attract rental, technically none of these ought to be counted in the Rentable Area. For purposes of this exercise, where office space cannot be separately rented without these Supplementary Areas (i.e. “Complex Space”), these supplementary areas have been included in total area available for leasing. The total of such supplementary space: 2,643 sqm.
⁵ Total space coming onstream
Means all space becoming available after 3 months. This space is either built (with tenants terminating their leases), in construction and not pre-let, or due to be constructed on risk. All tenant-driven developments are excluded.
⁶ Gross asking rentals.
All asking rentals provided above are gross, and exclusive of VAT. Gross rental can be defined as those rental and related expenses payable directly by the tenant to the landlord. This generally excludes, for example, rental-related expenses such as utilities (lights, water and sewerage), or internal cleaning. To deal with the elephant in the commercial real estate room, gross rental between owners can vary. Sometimes other “grey area” property-related expenses are paid additionally by the tenant, other times these are bundled into the gross rental number. Example expenses are: aircon and internal maintenance, additional security, elective generator levies, additional cleaning and hygiene.
Further to above, with rental holidays, tenant installation allowances and other tenant incentives, gross asking rentals can be hard to compare (on an “apples for apples” basis) between buildings. A skilled CRE professional will be able to navigate you through the financial and legal complexity.
To keep assumptions down, units to let providing only net rentals (1% of total) have been ignored. Average rentals have been weighted by area available for leasing. In event of complex spaces (spaces that are not separately rent-able) – for example including terrace, storage, balconies – differing rentals across space sub-categories have been weighted based on area. Non-office space (e.g. storage) rentable separately has been excluded.