A win for return-to-office in South Africa – but WFH is here to stay

Hybrid work, which emerged following the onset of the Covid-19 pandemic, is set to stick in South Africa, even if data shows that office space vacancy rates are declining.

“As companies reassess their office needs and employees seek greater flexibility, the landscape of workspaces, communities, and retail experiences is undergoing a profound transformation,” said Cobus Odendaal from Lew Geffen Sotheby’s International Realty.

Many US cities are seeing a shift to coworking spaces and flexible office arrangements as many companies do not want to commit to long-term leases, with this shift expected to come to South Africa’s major cities.

“With fewer employees commuting to centralised office locations on a daily basis, companies are reassessing their office needs and downsizing their footprint, leading to vacancies and downward pressure on rental prices.”

“Hybrid working is also spurring decentralisation with many businesses already having moved their offices to smaller commercial hubs nearer to residential areas and, in many urban cores, where office buildings once thrived, there is already a growing surplus of vacant space.”

“This presents both challenges and opportunities for repurposing these structures into mixed-use developments that combine office space with residential, retail, and recreational amenities.”

Suburban and rural areas are seeing a resurgence as remote workers seek larger homes with dedicated home offices and access to green spaces.

Conversely, suburban and rural areas are experiencing a resurgence as remote workers seek out larger homes with dedicated home offices and access to green spaces.

“This trend is fuelling demand for housing in suburban communities and driving up property values in previously overlooked areas,” said Odendall.

“In Johannesburg, there is a growing demand for homes in secure lifestyle estates on the outskirts of suburbia, ones that offer a country lifestyle whilst still being close to amenities like schools.”

Small boost for the office sector

Despite the push for hybrid work in South Africa, office space has recently seen some positive developments.

According to the FNB Property Broker Survey for Q1 2024, aggregate vacancy rates in all three commercial property classes – office, industrial and retail – dropped.

The Office Sector’s reading saw a strongly negative (improved) reading of -65, better than the -50 of the previous quarter.

“Should these perceptions be accurate, this is some particularly good news for office landlords, with that sector having had very high vacancy rates in recent years,” said FNB’s John Loos.

Vacancy rates in offices, like the other two commercial property classes, have been kept down following the normalisation of the economy since the Covid-19 pandemic, but also more lenient terms from landlords.

Office rentals only rose by 1.58% year-on-year in Q1 2024, according to Rode data, which effectively reflects an inflation-adjusted decline of 3.29% year-on-year.

A second key factor in containing vacancy rates has been the very weak economic growth in South Africa, with a measly 0.6% GDP growth seen in 2023.

“Square meterage of Office Building Plans Passed for the 12-month period to January 2024 were -66,7% lower than a multi-year high reached for the 12 months to June 2017,” said Loos.

“While the market has been seemingly “accommodating” of the tenant population since the end of lockdowns, and new supply of space is slow, we would expect a stalling of the declining vacancy rate in 2024 in lagged response to 2021-2023 interest rate hiking along with renewed economic slowdown.”

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