The number of cranes in the prime nodes of Johannesburg and its ever-evolving property landscape certainly supports the fact that various big corporates prefer a company address in a prime grade building. This can be seen in the current uptake of high quality stock, with most of these new developments breaking ground on a non-speculative mandate.
A look at the vacancy stats confirms this scenario, with P grade vacancies currently sitting at 3%, B grade reflecting a vacancy rate of 15% and C grade at 26%, with this looking to increase as new P grade buildings are occupied in the next 12 months.
Whilst this may be true for the global blue chip businesses out there with the budget to pay top grade rentals, it has created a gap for the mid-sized enterprises with a firm eye on the economy in the market for a better leasing deal. There are interesting opportunities for smart landlords of B & C grade buildings to develop a product that meets the demands of potential tenants seeking more cost-effective occupational costs but still offers attractive design and people features.
Just because a building is no longer flashy, lacks sophisticated technology, is perhaps under parked or is not a stone’s throw from a Gautrain Station or main arterial routes, doesn’t mean it should be written off. A closer look at the stats again reveals that although vacancies are lower in P grade developments, this is not the case for A grade buildings.
Given the current economic/political climate, there is definite value to be found here. Landlords need to consider how they can maximise their existing buildings to generate a new income stream over a further period. Many tenants would appreciate the prospect of occupying a ‘new’ building with the modern comforts of an A grade development at a much lower rental rate to reduce their occupational costs.
So what are the options?
- Engage with your property professional on the available options of older buildings within your defined area.
- Liaise with your space planner and property professional to understand the layout of the floors and number of floors in the building to gauge if it will benefit your current work place environment.
- With this info at hand, your property professional can interact with the respective landlord/developer to negotiate various upgrades/improvements, for instance:
- Increasing the parking ratio by gutting the ground floor or building a new parking deck
- Redeveloping the exterior and interior of the building while keeping its core
- Implementing new technology, like new window glazing or a remote sensor system
- Regear the property for increased income over a set time period as per the lease agreement.
- Capital improvements on the building (upgrade the façade, install new tech,) will attract a new income stream.
- The input of modern technology will certainly increase the buildings broader appeal to potential other tenants. From a sustainability point of view, much can be done at reasonable cost to add desirable green facilities to a building.
- Capital appreciation of the building contributes to the size of the portfolio.
Through cost-effective redesign and development, there is definite scope for older, existing buildings to offer great value to both tenants and landlords by utilising best in class property advice, planning and technology.