South African office properties here to stay

While many occupiers have adopted the work-from-home strategies thanks to Covid-19, offices are going to become the centre-point for organisations, around which regional and remote working can revolve.

For many office occupiers, the long-term, remote working strategies, and downsizing of space to cut costs, started before the Covid-19 pandemic and lockdown at the end of March.

For a while now, landlords and occupiers have been saying that the ever increasing costs associated with running and occupying office space is what keeps them awake at night.

Companies such as Cresa who assist occupiers in understanding their space requirements, and develop strategies to reduce occupancy costs, have noted that office users – from small to big have adopted the remote working strategies with some better placed than others.

Ché Gaier, director at Cresa says that HR departments have been assessing job functions in relation to working style, and this is then feeding into the assessment of space required. “Current space required to achieve social distancing is offsetting space reductions somewhat, and businesses are seeking to incorporate new ways of working, and reduce their property cost base.”

Even before the emergence of Covid-19, and the work-from-home concept, the office property market was oversupplied, with corporates consolidating space from various locations into one big head office, says Keillen Ndlovu, head of listed property funds at STANLIB.

Corporates including Discovery, Sasol and PwC have moved from older buildings to new central locations in nodes such as Sandton CBD and Waterfall in Johannesburg for example.

Many occupiers have long adopted the work-from-home concept, with hot-desking starting to trend with some of the big corporates. With companies having become accustomed to working from home and seeing the benefits: that it’s cheaper, saves times in traffic, and is also considered good for mental well-being, going forward, it would be a challenge to see high demand for office space.  

“We may see 20% to 30% less appetite for office space as leases expire. It’s still early days, but office landlords will need to be creative with excess office space and look to alternative uses such as residential, storage, self-storage, schools or medical-related use such as clinics or day care.”

Guy Voller, managing director at Cresa says the priority currently is typically the reduction of office occupancy costs. In the case of a lease, occupiers seek to reduce rental and/or space and, in owned buildings, this means looking to reduce running costs, supplement income by means of leasing out the space, or even a disposal/sale of unnecessary space.

Office of the future

Savvy landlords are adjusting to the new normal, and fast realising that the way offices operate has changed, along with the needs of users.

For JSE-listed Real Estate Investment Trust, Growthpoint Properties (who own 171 office properties in South Africa), while there seems to be some knee-jerk concern for the future of the office market, overall feedback received from both occupiers and the market is that offices are here to stay.

“Physical spaces will need reconfiguration to suit occupier needs,  however, their role as business spaces will continue to remain as relevant as ever, if not more so,” says Paul Kollenberg, Growthpoint’s head of asset management for the office portfolio.

Kollenberg points out that, while already emerging as a trend prior to lockdown, tailoring space to its use is going to be a big part of the office of the future – spaces to meet and collaborate, to do administration tasks, to concentrate – rather than a staff member having one dedicated desk to do everything.

“We believe that offices are going to be a place to plug in – where people can plug into a team and corporate culture, creative thinking and problem-solving, innovation, and where a remote working network can plug into their company server and resources,” he says.

An emerging trend as a result of this shift is that an office in a desirable node is no longer enough. The exact location within that ‘desirable’ node is becoming relevant because offices in amenity-rich environments are proving to be popular.  However, says Growthpoint, the trend for amenity-rich environments was evident before the Covid-19 pandemic, but has now been amplified.  

Meanwhile, Cresa sees a trend whereby occupiers are often settled in a chosen node, as long as it meets their requirements. However, a real estate change brings about the opportunity to look at other nodes which offer better value for money or superior locational attributes.

Even though changes in use of office space started before Covid-19, the lockdown further highlighted this, however, office property is here to stay. Its form and function have to change, and with ongoing increase in property costs, creative and innovative ways will be the norm in lease negotiations going forward.