According to research released by Rode and Associates in March 2012, actual office vacancy rates for the major metropolis in South Africa (Johannesburg, Pretoria, Cape Town, and Durban) varied markedly in the fourth quarter of 2011.
The Johannesburg central business district (CBD) and Durban CBD had the highest office vacancy rates, measured as 17.1% and 15.3% respectively. As the vacancy rate is a measure of the proportion of office space available for lease, this is potentially good news for small business owners as it could mean that property agents and owner-managers in these areas may be more amenable to negotiating lower office rentals, lowering small business owners’ operating expenses.
Small business owners may also be able to negotiate co-funding of renovations to property whereas in boom times (i.e. low vacancy rates) property agents and landlords might tend to have more of a ‘take it or leave it’ attitude.
Interestingly, Pretoria CBD had the lowest office vacancy rate of the metropoles reviewed by Rode at 1.7%. This suggests that small business owners wanting to establish operations in the Pretoria CBD are in a difficult position, having to find available office space, to begin with, and then jostling with other businesses (large and small) to secure the little office space that is available.
The scenario for industrial rentals seems to be positive from a small business perspective. April 2012 research by Rode and Associates shows a steady increase in vacancy rates for industrial space relative to 2007 levels. In terms of rental prices for industrial spaces (measured in Rands per square meter), these are currently highest in Durban and lowest in Port Elizabeth.
Whilst high office and industrial vacancy rates can represent opportunities for small business owners, there is a downside. High property vacancy rates indicate low levels of economic activity, hence some of the customers or suppliers the small business owner might have moved to get closer to may not be as active as anticipated, nullifying any benefits from physical proximity.
Another disadvantage of high vacancy rates is that the small business could lose out on the networking and partnership opportunities that would normally be associated with being part of a big community of co-tenants. Ambitious and astute small business owners should conduct additional research to explore opportunities in the property sector such as buying their own office or industrial space and buying residential property on the buy-to-let model as an investment strategy.
Useful resources include: Rode & Associates Property Consultants (www.rode.co.za)