The push to have workers return to the office in South Africa is not bearing much fruit – but some are begrudgingly making their way back to traditional work patterns because of load shedding.
The latest Rode Report on the South African propert market for the third quarter of 2023 shows that the country’s office market remains on the back foot, being the worst-performing in the three major non-residential property types.
While there has been a slight improvement in national vacancy rates for office space, the pace is slowing – and in real terms, the prospects look bleak, the group said.
Rode Report editor Kobus Lamprecht, noted that South Africa’s office market has been boosted by a general return of workers to offices since the end of the Covid-19 pandemic in 2022. In many instances, this has been done in a hybrid way.
There has been a push from employers to get workers back into the office, with bosses favouring traditional operations over the methods which have become preferred by employees.
The arguments for and against work-from-home and various hybrid models are varied but essentially boil down to employers seeking full-time productivity from workers in an environment where this can be assessed and controlled and workers seeking a better work-life balance, cutting out commute times and wasted hours on office logistics.
The reality, however, is that, while workers are slowly moving back to the office – sometimes having no choice – this has not been enough to fully counter the impact of Covid-19 and the work-from-home trend.
As such, many spaces used for offices have evolved into ‘hot-desking’ areas, while other office spaces have turned to ‘hotelling’ – converting office space to residential space.
For workers, there is another factor at play, Lamprecht said, with the return to offices being boosted by people looking to work in a fully powered environment rather than at home, where load shedding is more of a problem.
“The cost to keep lights on during load shedding is enormous, and one could argue that it may inhibit the growth of achievable rentals in the future. It is a question of affordability,” he said.
Load shedding and the wider electricity crisis are also having an impact in other ways – by keeping GDP growth low and businesses under pressure. Because of this, in many cases even if companies wanted to expand office space or bring on more employees, they cannot.
“The fact remains that office demand will not see a sustainable turnaround without much stronger economic growth. The South African economy expanded by only 0.9% year on year (seasonally adjusted) over the first half of 2023, slowing from 1.9% in 2022.
“In this uncertain and poor economic environment, companies will generally remain hesitant to expand their premises or hire new employees. In fact, this could mean more businesses could close, especially smaller companies that lack capital.”
Nationally, rentals for grade-A office space increased 2.8% in nominal terms in the third quarter of the year compared to the same in 2022. This is slower than the 3.4% recorded in the second quarter.
Rental growth over the first nine months of the year is at 2.9%. While still showing growth, Lamprecht said that this is still below levels seen in 2019, before the pandemic.
The troubles are not the same everywhere, either.
Looking at specific areas, Cape Town has been a top performer, where rentals have increased 12% – even exceeding pre-Covid levels. This is compared to the national average in major cities, which averaged between 0.5% and 2.0%.
“This implies that, in real terms, only Cape Town managed to record above-inflation rental growth compared to a year ago,” Lamprecht said.