How has Covid-19 and the forced move to remote working impacted on the demand for and longevity of commercial office property in South Africa? It is not viable for businesses to continue to pay rent or foot the municipal bill for a head office that hasn’t been fully occupied and utilised since March 2020.

How Covid has changed the demand for office space in South Africa

Research by property consultant group Rode & Associates has revealed a high and ever-increasing level of vacant office space in South Africa since the onset of Covid-19. A report by the firm has put the national decentralised office vacancy rate at close to 14% in the second quarter of 2021.

Nominal rentals for decentralised grade-A office space narrowed 6% year-on-year in the second quarter, declining on an annual basis for the fourth consecutive quarter and pointing to a meaningful and consistent trend of office closures across the country, it adds.

Meanwhile, as many as 58.73% of South African companies are currently re-evaluating their office space needs, property brokers polled by FNB have observed.

With the work-from-home (WFH) model perhaps one of the most significant changes to commercial workplace trends, companies are increasingly looking to reduce workplace operating costs and invest in remote technology that enhances digital communications among employees.

‘Now the office is coming to be seen as a place to form social bonds, create corporate culture, host clients and attract talent,’ a recent report by global professional services firm Arup states.

Options available for commercial property owners and tenants

South African companies that own or lease commercial property and which are looking to reduce their office space and embrace a decentralised or hybrid work model, could consider one of these options.

• Negotiate with the landlord: Perhaps the first port of call for corporate lessees is their landlords. The high level of office vacancies has resulted in an oversupply of corporate letting space and Craig Mott, Commercial and Regional Sales Manager for the Rawson Property Group, has observed an increase in flexible terms and shorter lease agreements due to the uncertainty. This has given corporate tenants an advantage in lease negotiations relating to longer rent-free periods, zero deposits or lower overall rentals.
• Trim office space: Rather than offloading your entire office space, businesses can look to reduce their office footprint and introduce meeting rooms, workshop areas and hot desks, which support a WFH culture as well as a collaborative on-site environment. This could result in an HQ that is a ‘showroom’ for clients rather than a place where 100% of your staff work 100% of the time.
• Shared spaces: Companies that own their commercial property – particularly in high-density nodes – could investigate converting their building into a hybrid or mixed-use office space by leasing a portion of the property as retail space. ‘This is not a bad strategy in order to reduce the risk on a commercial property. Rather have multiple tenants renting a property and lose one of those tenants than have one large tenant that you cannot replace if they leave,’ says Mott.
• Sell: Self-storage and logistics businesses are increasingly looking to purchase vacant commercial property in key nodes and convert them into holding or distribution centres. Similarly, residential property developers are purchasing vacant commercial property in urban areas to develop residential units that offer mixed-use, urban lifestyle living.

Will the office outlive the pandemic?

With little certainty regarding the future of workplace trends or the permanence of remote work policies, businesses may also question whether the need for smaller office spaces due to Covid-19 is temporary or whether it really is the new normal.

Mott asserts that the decision to retain or offload a commercial space should be reviewed on a case-by-case basis.

‘Companies will need to assess the success that they have had with the WFH trend and how it has affected their productivity as well as their work culture and service delivery,’ he says.

The property brokers polled by FNB have described a more cautious ‘wait and see’ commercial buyer mindset, which includes leasing rather than owning property, as well as a demand for more affordable, lower-grade properties.

Office size will, for example, be impacted by new company policies that mandate bigger spaces for employees to prevent the transmission of Covid-19 among staff, limiting the total enclosed space and introducing strict legislation for heating, ventilation, and air conditioners.

Alternatively, once Covid-19 vaccination levels in South Africa have reached an acceptable levels and the pandemic has been largely contained, there is the possibility of a return to a more traditional workplace culture, thus making a full rethink of commercial office space unnecessary.

For now, though, all reports and surveys on workers’ expectations with regard to a return to the office, continuing to work remotely or a hybrid model, indicate that most employees do not want to return to the office full-time. The World Economic Forum says that globally a quarter of those who are currently working from home want to return to the office every day while the figure for South Africa is slightly higher at a third.

Another interesting statistic comes from a PwC study that shows that remote work is not only possible for office workers, freelancers and contract workers. It indicates that globally 43% of manual workers and 45% of semiskilled workers believe that they, too, can do certain elements of their work from home.

On the other hand, in the UK – where over 47 million people had received their first dose of the vaccine by mid August 2021 – expectations for a return to workplaces and therefore an uptick in the commercial office property sector is far more buoyant.

Some 56% of real estate respondents to a recent report by The Royal Institution of Chartered Surveyors believed the UK commercial property market was likely to recover as restrictions were further lifted – a scenario entirely possible in South Africa once its vaccination programme reaches critical mass.