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Huge hike expected in A-grade office rentals
A HIKE of 60% to 70% in A-grade office rentals can be expected within the next few months to make new developments viable in the face of increased building costs, Erwin Rode of property economists and valuers, Rode & Associates, warned this week.
“Average A-grade rentals in Cape Town are currently at around R70m² but to justify new development, these are going to have to jump to R110 to R120m² in the very short term.
We are already seeing the first signs of this with pioneer rentals of R100m² or more being achieved.”
Rode warned that A-grade rentals for new space coming on stream within the next 12 months or so were going to have to be in the order of R125m² to make these developments viable.
“And it is only a matter of time before existing A-grade stock plays catch up and we expect these rentals to move beyond the R100m² level next year.”
Developers are reporting that building costs are continuing to soar overall by 15% to 20% this year following a 17,5% rise in costs last year.
Greg Deans, managing director of Century City Property Developments (Pty) Ltd, the developer of Century City where the bulk of new development is taking place in the Western Cape, said the Bureau for Economic Research (BER) had forecast a moderation in building costs for this year.
“However, we are simply not seeing any sign of this and the quantity surveyors across our projects are reporting material costs in many instances are up by between 20% and 40% and overall building costs by 15% to 20%.
“For example, they are reporting concrete prices are up 20%; copper, which is essential in electrical and plumbing work is up 30% and here it is difficult to get a fixed price; aluminum and glass are up 30-40%, steel is up 20% and plaster by 30%.”
Deans said, even though BER was reporting a slowdown in demand for residential buildings this was more than being offset by increased non-residential development.
“Rising prices are simply a function of supply and demand and constraints within the building industry in terms of skills and materials are still very evident and this can be expected to accelerate further in the build-up to 2010,” he warned.
“In most instances we do not go out to tender on projects as contractors generally still have full order books and the tendering competition is very weak.
“Instead, we are generally opting to negotiate construction contracts with contractors who are already on site on projects at Century City to benefit from the economies of scale,” said Deans.
Deans confirmed Rode's outlook for office rentals on the back of the increasing building costs.
Newspaper: Tyger Burger 09 August 2006
Mr Erwin Rode
