CRE research: Bryanston office vacancies Aug 2019

Industry Intel and News

“Data is the oil that the commercial real estate industry runs on” 

Bryanston – a sprawling office node – is 5.2 kms end to end, and covers 192 hectares of land used for office. Following roughly the Wiliam Nicol road arterial, it is bounded by the artificial barrier of the N1 in the north, and contained by St Stithians School in the south. Home to established businesses such as Dimension Data, Microsoft, Nestle, Samsung and Tiger Brands, through to up-and-coming tech businesses like Rain and creative agencies such as Workbench**, Bryanston is a low-traffic option between Fourways and Sandton, servicing well-heeled residential suburbs.

Out of interest, Bryanston’s five largest owners by GLA (comprising 50.2% of total) are:

#1 | GLA: 105,549 m²

#2 | GLA: 93,440 m²

#3 | GLA: 75,603 m²

#4 | GLA: 43,751 m²

#5 | GLA: 35,565 m²

This article talks to Bryanston office vacancies’ current state of play – vacancies, space quality, total development, asking rentals, and space coming onstream.

Most people would guess, and guess well, that Bryanston, performing well in these times, is vacant in a range of 7% to 10%.

However, at the 11.8% indicated above, the reality is that it is taking more pain than experts would have predicted. (To give vacancy rate benchmarks, 20% vacancy means one in every five properties is vacant (alarming), while, on the other end of the scale, maximum absorption for a (full) node can hover around 3% to 4% (depending on your definition of vacant space))

For starters – what is Bryanston?

Bryanston, for purpose of this exercise, is defined by the following shape (polygon) – image below.

If you click on the button immediately below, you can see Bryanston in Google Earth (to view, you will need Google Earth on your machine. If you don’t have Google Earth, the button to download it is alongside)

Bryanston commercial property to let research

The above shape, straddling the 5 suburbs detailed above, and encompassing, in total, 650.3 hectares in extent (6,503,841 sqm), of which 192 Ha is office, contains however only 189 office properties (Note: this is commercial real estate (CRE), and it is complex – one property can comprise many buildings, each building can comprise many units or “pockets” of space).

The white space in the above image (comprising 458 hectares), represents residential, a golf course, public space etc.

More detailed commentary on the Bryanston definition and image¹ is available in the Notes section below. (For interest’s sake we have added % office vacancies² per suburb to the graphic above.)

Bryanston office vacancies: snapshot now

Bryanston office to let research

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?

So how does this compare to other nodes? Comparative nodes to Bryanston (decentralised business district, lower density, close access to resi) score the following on their vacancy rates:

Bryanston office vacancy rates - comparative

Comparative data source: MSCI Real Estate, SAPOA Office Vacancy Survey 2019 Q2 July: Vacancy rate – Area Available For Leasing

Unpacking vacancies by grade

Not all space is the same. In the graphic below, Bryanston vacancies are broken down by grade (“quality” to CRE industry outsiders)

Bryanston office vacancies by grade

The higher P grade (premium grade) vacancy is due to two factors: 1) a lower proportion of completed P grade property in play, and 2) a 4,477 sqm space becoming very recently available. Excluding the 4,477 sqm, P grade actually has low vacancy levels (2.3%). The relatively low supply points to one or a combination of a) landlords being cautious in releasing new product to market (i.e. ensuring it is de-risked by user demand), and b) the quality of new product being significantly superior. P grade space is generally represented by newer assets – delivering higher office space efficiencies, more generous parking ratios, and reduced utility costs (electricity and water).

Bryanston is characterised by relatively little C grade space.

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 such as these, landlords may look to structure leasing agreements, resulting in rentals below asking.

Gross rental⁶ is defined at the foot of this article.

Bryanston office rentals CRE research

Comparative nodal information on rentals can be found below

Bryanston office rentals comparison

Source: Rode’s Report 2019:2 Office rentals

Timing of vacant area coming onstream

The image that follows 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, Bryanston property owners are exercising prudence in holding back on future “on-risk” developments, therefore not releasing further supply into the market.

Bryanston office future developments

The “now” date is 15 August 2019. Thus 0 to 3 months refers to all vacancies coming onstream before the middle of November 2019. 3-6 months is all space becoming available from mid-November to mid-February 2020.

Deal flow reducing Bryanston office vacancies

The following table provides all known significant leasing deals, concluded in Bryanston from 2019:Q4 onwards. To emphasise, this excludes the majority (by count) of leasing deals closed for space smaller than 800 sqm.

CRE Bryanston deals

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:

JLL CRE
BPP CRE

Bryanston: before and after, and future

If you are interested to see what Bryanston looked like 10 years ago, and get some predictions into what the next 10 years may hold – here is the article for you:

<- Click here to check this article out

Accreditation and thank you

Commercial real estate remains an information-opaque industry…

Thank you to area experts as follows

Thank you also to Roddy Watson of Investec Property Group, and Jock Seeliger of RPP Developments / Stratford, both on the pulse of deal activity in the node, for helping with recent leasing deals done.

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.

Notes

Methodology

Gmaven processes 95% to 100% of public domain vacancies (inventory) in South Africa – at present an operationally intimidating 6.7M square meters of vacant leasable area, covering 9.4K units. 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 quality processes and audits – from rigorous data validation and exception management to reconciliations. 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 Bryanston geo definition

Polygons inevitably will cleave suburbs (i.e. will not always include suburbs in entirety). The “casualty” (cleaved suburb) in this definition is the large suburb of Bryanston proper in the center.

Specific exclusions from the geographic definition of Bryanston for purposes of the Bryanston office vacancies exercise: properties beyond Peter Place/Lyme Park, such as Hurlingham Office Park, Fourways to the north, Randburg to the south-west and (at the risk of stating the very obvious) Rivonia to the east.

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 would exclude those properties ear-marked for redevelopment to hotel or residential, or those sites where development will be user-driven.

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, 6,205 sqm of this space is included in the 83.2K sqms.

The above includes:

  • Space to let by landlord,
  • Space becoming vacant as tenants terminate leases,
  • Shadow space (such as sub-leasing opportunities)

It excludes:

  • All space becoming available for rental after 3 months,
  • Space due to be occupied (high probability) by tenant/s arriving from outside of the node,
  • 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: 2,109 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 Bryanston office vacancies 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

** We are grateful to the talented and great-to-work with Workbench for assisting with the design of this article

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