Depreciation of rand a concern for retail margins in 2016

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In the retail market, rising inflation with the notable depreciation of the rand is a concern for retail margins in 2016. The weakening of the rand also illustrates the reducing confidence in the South African economy with the sovereign credit rating at risk. As a result, cap rates could see retail property values declining in the year ahead. Successful retailers are those who recognise the growing price sensitivity of the South African consumer given the current economic climate, providing some opportunities on the demand side of retail accommodation. Vacancies in Johannesburg’s retail accommodation remain low, providing confidence for developers.

Highest development pipeline recorded

In the Johannesburg office market, 2015 has seen the highest development pipeline recorded according to SAPOA, with exciting flagship developments scheduled for completion within the next two years. Although rental rates have largely remained unchanged during 2015 in most parts of the city, Grade P office accommodation has shown substantial rental growth in the past five years, indicative of a healthy market despite the current economic climate.

Average vacancy rates have seen a slight increase from 11.3% in Q3 2015 to 11.8% in Q4 2015, mainly driven by vacancies in Grade A office accommodation. In contrast, Grade P vacancies remain below 5.0%, while Grade B accommodation has seen growing take-up in selected nodes.

Decline in Joburg industrial accommodation vacancy rate

The vacancy rate in Johannesburg’s industrial accommodation declined to 8.3% in Q4 2015 from 9.9% in Q3 2015. Compared to 2014, rental rates declined by an average of 4.2% in the Johannesburg market. Low demand has created favourable conditions for tenants. Weak global demand remains an obstacle to export activity while the depreciation of the rand is likely to contribute to a decline in imported goods. Together, these point to weaker demand for industrial accommodation in the year ahead.

In Cape Town, demand in office accommodation showed improvement during Q4 2015, providing a positive start to 2016. The overall Cape Town office vacancy rate declined to 7.2% in Q4 2015 from 9.0% in Q3 2015. The presence of major financial institutions continues to establish a financial district in the northern CBD/ foreshore attracting both local and international tenants who are increasingly viewing Cape as a strategic location.