Flat vacancy rates already in double-digits rise further; weaker rental growth expected

SA’s flat vacancy rates already in double-digits recorded a 13% increase in the fourth quarter of 2020 from 11% in Q3.

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According to the Rode Report Q4 2020, the latest increase is more than double the 5.8% average of 2019.

“High and increasing flat vacancy rates have led to weaker rental growth,” says Erwin Rode, MD of Rode & Associates.

Nominal flat rental growth reached 2% in Q3 2020 compared to 2019, – the weakest growth since 2009, reveals Stats SA.

Rode says in the first nine months of 2020, flat rental growth slowed to 2.7% from 4% average in 2019.

“It is very likely that rentals will come under more pressure in the near-term due to high flat vacancy rates.”

Oversupply, weakening demand and tenants under financial pressure are the reasons for rentals being under pressure. “The market recorded huge increases in rental stock between 2018 and 2019.”

The report notes that 2020 saw a decline in new flat completions mostly due to lockdown, and developers planning on building less.

Rode says financially sound tenants have added woes to the rental market as they chose to buy instead of renting. “The monthly cost of owning property versus renting is closer to equilibrium due to the sharp decline in interest rates.”

Read also: Property trends that shaped SA’s residential sector in 2020

Additionally, the shift to long‐term leases focused on the short-term, (tourism linked) have exacerbated the situation, especially in Cape Town.

High-end rental flats worst off

TPN data reveals that flat vacancy rates are in double-digits across the board, with the high-end segment impacted the most. Here, rentals of +R25,000 per month recorded vacancy rates of 23% by the third quarter of 2020. Monthly rentals below R3,000 recorded a high of 17% and 14.9% for rentals between R12,000–R25,000 per month. Rentals of R3,000–R7,000 per month recorded 11.4%, and 10.3% was recorded for the R7,000-R12,000 price bracket.

According to the Rode Report, the inner city of Johannesburg is experiencing high vacancy rates. For example, one building is reportedly only 25% let. The rest of the flats are either vacant, tenants are not paying rent, or they are about to move out.

There is no chance of recouping arrears, and there isn’t much demand from new tenants either, according to the report.

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Cape Town and Durban record highest vacancy rates

Of the areas surveyed, Cape Town and Durban recorded the highest rates of 17.4% and 19% respectively.

Areas like Stellenbosch and George known for low vacancy rates saw sharp increases in 2020. Stellenbosch reached double-digits to 10.3% in Q4 2020 from 9%, and George recorded a high of 8.3% from 2.9% in Q3.

Below is a table of flat vacancies by city (average for all grades).

City Q3 2020 Q4 2020
Bloemfontein 6.8% 6.3%
Cape Town 16.7% 17.4%
Durban 19.1% 19.0%
George 2.9% 8.3%
Johannesburg 11.3% 13.0%
Pretoria 16.5% 14.2%
Stellenbosch 9.0% 10.3%
National 10.9% 12.9%

Source: Rode Report

“We believe flat vacancy rates will remain at elevated levels in the short-term as more tenants run into financial difficulties.”

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