Commercial office vacancies on the decline in Cape Town
The Reserve Bank is committed to raising interest rates to combat inflation, and that has many property experts worried. True to form, however, the Mother City is bucking a negative national trend and reporting an excellent decline in commercial property vacancies with demand for commercial property on the rise.
A combination of factors, including land scarcity, the Eskom crisis, and a fresh demand for distribution and logistics facilities are working in the city’s favour. Cape Town’s commercial buildings stand out in a high-interest environment where every cent financed by property buyers needs to be justified by good long-term prospects and returns on investment.
In this article we delve into the current upward trend in the commercial rental sphere in Cape Town and take a look at the metro’s prospects in the era of high inflation.
Turning high interest rates into low vacancies
With inflation rising around the world, South Africa’s average prices are set to increase by more than 6% this year. Increasing interest rates will be the norm until this situation stabilises and with the prime lending rate back at pre-pandemic levels of 6.25% the era of cheap money is truly behind us.
Surprisingly, the Cape Town property market is showing no signs of slumping – in fact vacancies are dropping year on year.
- Rentals for prime industrial space in the 500m² category jumped by 7.2% year-on-year in Q2.
- Prime office space in Century City recorded a 3.2% increase against 1% in Sandton.
High interest rates usually bring about fewer property transactions since the cost of borrowing goes up, and in cities with plenty of space for development and unsold or rented commercial properties this will probably be the case, but not in Cape Town.
There are several factors contributing to the increased interest in commercial spaces in the Mother City this year:
- Limited space. The city’s geography, with most land suitable for development lying between Table Mountain in the Atlantic, puts an immediate premium on land. This increases demand even with high interest rates.
- Fewer retail options. Compared to other cities in the country Cape Town has relatively few recently built shopping centres. This makes retail premises especially attractive to tenants and increasing construction costs mean that the situation will probably remain the same for the foreseeable future.
- Big demand for distribution centres. The rise of online shopping during the pandemic has seen a marked increase in the number of clients seeking light industrial premises to set up distribution facilities. This demand comes at a time when space for development is at a premium and retailers don’t have years to wait for new warehousing and logistics facilities to be built.
Cape Town: a haven for semigration in times of trouble
The Mother City is outperforming other major metros when it comes to commercial property vacancies this year, with the ongoing issues affecting the South African economy being less severe in the Western Cape.
The Eskom power crisis, which some experts say is reaching a tipping point this year, is being tempered by the city of Cape Town’s promise to switch over to independent power producers as a matter of urgency.
The city was largely spared the recent level 5 and 6 load shedding that brought business to its knees in other provinces.
On the political front, while Cape Town is considered to be the best governed metro, there are still pockets of unrest which need to be addressed. The city government continues to make efforts in this regard to further boost Cape Town’s brand as an investment destination.
Fortunately, the authorities appear to be acting to address all of these concerns, and despite the occasional disruption, Cape Town still remains one of the most stable and sought-after business locations for semigration in the country.
If the local government’s ambition to go off the grid and cut its reliance on unreliable Eskom power is realised, Cape Town could be in a unique position to attract new investments and offer the kind of stability that businesses need in order to thrive.
Interest rates may be rising this year, but so is interest in the Cape Town property market. To benefit from this positive trend as a property investor or office space tenant, contact our team of area specialists today.
