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The changing face of South Africa's office market

The changing face of South Africa's office market

The COVID-19 outbreak (and subsequent lockdown across South Africa) has left real estate professionals with more questions than answers. What does the future hold for property investment? How will the real estate markets hold up? Will social distancing affect the office market? What we know for sure is that, as we move into the post-COVID-19 world, the office environment will have to change substantially. The question then is not one of if, but rather of how.

In order to find out how they foresee the office marketing evolving after lockdown, Jaclyn Baiocchi from Broll's Broking Division interviewed a handful of prominent landlords and tenants. "I wanted to understand the pain that my tenants and landlords are experiencing, and if I can do anything different to assist them." says Baiocchi.

In general, landlords understand the importance of working in partnership with their tenants, in order to combat the current uncertainty around what lies ahead in the next few days, weeks and months. They have been inundated with requests for rental relief from tenants across the size spectrum, and are assessing requests on a case by case basis. According to the interviewed landlords, a number of their tenants have given notice. However, generally speaking, tenants just want some relief during these difficult times. Tenant requests range from rental concessions, to tenants asking for their deposits to be used as rental, to requests for the reduction of space. As landlords are aware of the huge challenge to preserve their financial position, and of their importance in the country's economy, they take these requests seriously.

To attract new tenants, some landlords are offering rent-free periods, from three to six months, with flexible deposit options. Many are including moving contributions to cover some relocation costs. However, their focus is not only on targeting new tenants, but also on the well-being of their existing tenants. In order to protect their tenants when offices become fully operational, landlords are starting to facilitate operational plans that incorporate current regulations. However, they will have to think further to make provision for additional regulations in the future. A number of landlords are reassessing the design of their office spaces in order to accommodate current and future workplace regulations. This is in order to safeguard both their tenants and their investments.

Landlords are currently in a phase of re-adjustment, contemplating cash flow, and assessing the possibility of liquidation or rebound strategies, as companies become more accustomed to working from home which will affect the uptake of big pockets of space. Further observations derived from Baiocchi's survey include:

  • As density was decreasing in office space before the pandemic in order to keep overheads low, the 6-feet rule will require an increase in the density between workstations. This could increase re-requirement for space.

  • Even though people realise that they can work from home, human nature will still beg for human interaction, which may be the saving grace for the office market.

  • In order to retain existing tenants, landlords are offering renewal rentals for longer periods at lower rates.

  • Landlords are willing to look at leasing out a floor in large buildings to accommodate flexi-space providers, to utilise the space for six to twelve months.

  • Landlords realise that they need to go from being disrupted to being disruptors, and acknowledge the importance of digital transformation in the real estate industry of tomorrow.

The picture changes somewhat from a tenant's perspective, with many considering the survival of their business as their number one priority. A number of tenants indicated that becoming more remote is likely in their future, with a reduction of space the likely result. However, some tenants have indicated that remote working is not viable in their business, and have consulted with space planners to reconfigure their current working spaces in order to create cellular offices and more open spaces to remain compliant with social distancing. This may result in these tenants looking for more space. Other options include remote working but retaining lesser space, with a rotating desk policy, and a few tenants are contemplating the option of serviced offices. In general, tenants feel that face-to-face time within the typical office space is effective, but they can be just as effective without it making the remote working model the most likely. Based on the findings of Baiocchi's survey, there are a number of options available for tenants, including:

  • A blended workspace environment, with some staff working at home and others working in serviced offices or traditional, reconfigured office spaces.

  • Also due to retrenchments and downsizing, tenants can look at occupying a serviced offering or 'hot desking' in order to grow into the space once the business environment improves.

  • Tenants should be given the option to sign shorter leases due to uncertainty in the current business environment.

Taking cognisance of the rapidly changing business environment, Broll Broking provides both landlords and tenants with options to fulfil their office needs, whether traditional or "new normal". Furthermore, to adhere to government regulations, the Broll Broking division will provide virtual viewings, or arrange for decision-makers to view properties with brokers, at specific times, to prevent large groups viewing simultaneously.

Contact Jaclyn Baiocchi now:

082 555 0424


Broll Property Group

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