Vacancies stabilise but prime Joburg spots remain a headache for Investec Property Fund | Fin24

Investec Property Fund considers three office buildings “at risk”. 4 Sandown Valley Crescent in Sandton is one of the those.

• The owner of the Firs and Design Quarter says vacancies has reduced beyond its expectations.
• But there are stubborn “pockets” of office vacancies in Sandton and Rosebank.
• Investec Property Fund now considers three office buildings “at risk”. 

Investec Property Fund says vacancies in its buildings in South Africa are stabilising. The owner of the Firs and Design Quarter in Fourways said the vacancy rate in the local portfolio reduced to 9.2%, beating its own expectations communicated in April.

However, Johannesburg’s busiest economic hubs, Sandton, Rosebank and Randburg, are still creating a headache for Investec Property Fund. 

The group’s office vacancies climbed to 14% from 9.7% in March after one of its tenants gave up its 15 500m² space in Randburg to relocate to Sandton. The fund is targeting to reduce office vacancies to 11% by year-end.

Excess office supply create a risk for some buildings

Investec Property Fund has now identified three office buildings in Sandton and Randburg as being “at risk”. 

With approximately 33 000m² of space, these office blocks make up 13% of Investec Property Fund’s total office portfolio in SA. They represent about 2% to 3% of the company’s total SA portfolio when one includes retail and industrial buildings.

“But if you then consider that South Africa makes up 56% of our total portfolio, that office vacancy of 33 000m² equates to probably 1% of our total gross lettable area under management,” said Investec Property Fund’s joint CEO Andrew Wooler.

The company said about 70% of its SA office portfolio still has a weighted average lease expiry (WALE) term of 5.6 years, and they house “quality tenants” with strong cash flows. Another 20% of the remaining office portfolio has an average WALE of two years.

Although these “at risk” office buildings look smaller in the scheme of things, when one starts looking at Investec Property’s Funds whole business, the company said the problem is the oversupply of office space in these nodes.

Wooler said the group can’t ignore them because if it can turn the fortunes of those offices around, they can have a significant impact on its earnings.

Rosebank and Sandton are stagnant

Rosebank and other buildings Sandton are also struggling to get rid of the “small pockets of vacancies”.

“Rosebank and Sandton are stagnant. It has been a challenge, more so in Sandton than in Rosebank,” said Wooler.

In Rosebank, the group’s The Firs building in the popular mixed-use Rosebank precinct is struggling with vacancies because of the temporary closure of The Hyatt Rosebank hotel, said Wooler. This is affecting the building’s retail tenants, who rely on hotel guest traffic particularly hard.

Wooler said Investec Property Fund is now in discussions with the Hyatt Regency management in the UK. While the group remains in the dark about when the hotel will reopen, its focus is filling office vacancies in that building. 

The First got a couple of new office tenants in the past three months as some companies moved from the nearby Melrose Arch precinct. Including other areas beyond Rosebank, Investec Property Fund has closed 19 leasing deals in the office sector for the six months ending on 30 September with a weighted average lease expiry term of four years.

“But in the absence of knowing when and how The Hyatt is going to reopen, it’s very difficult for retail operators to make a living in the Firs,” said Wooler.

But the stabilisation in vacancies in other areas, strong return of footfall to the group’s shopping centres and growing trading density among tenants helped Investec Property Fund generate better net property income. The group recorded a material reduction in the rental relief given to its SA tenants. It provided relief of R8 million in the six months to September compared to R55 million over the same period last year.

The European operations, which make up 44% of Investec Property Fund’s portfolio, only had a 4% vacancy rate, and rental collections remain strong at almost 100%.

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