Return-to-office trend lifts demand for Spear’s Western Cape offices

Spear, the Western Cape-focused real estate investment trust (Reit), says office demand has remained resilient despite the growing use of AI and its potential impact on the commercial office sector.

Commenting in an operational update for the three months to end-May, the company said demand continues to be driven by business process outsourcing, financial services firms, fintech businesses and renewable energy companies.

The group said the return-to-office trend continued to support expansion by existing tenants while a shortage of new office space in established commercial nodes underpinned rental growth on renewals and re-lets despite higher operating costs and increased municipal valuations.

“There was a slight increase in office vacancies during the quarter, largely due to normal portfolio churn rather than persistent vacancy risk,” Spear said in the update.

“Management remains focused on targeted leasing strategies to maximise occupancy and unlock long-term value across the office portfolio.”

The group said it remains on track to deliver an increase of 6%-8% in distributable income per share for the financial year ending 2027, despite headwinds including the Middle East conflict, a shift to higher interest rates, inflation and rising operating costs.

“During the first quarter of the 2027 financial year, the core portfolio performed in line with management’s expectations despite the recent conflict in the Middle East, which put pressure on some tenants through disruptions to global supply chains, higher raw material costs and rising fuel prices,” it said.

Spear reported positive rental reversions, with renewals and re-lets increasing 1.79% while renewals alone rose 5.28% over the period.

The group’s industrial portfolio maintained a strong performance for the year to date, with occupancy at 98.17%, underpinned by sustained demand for well-located industrial space.

During the year, the group secured various assets, including Watergate Centre, Mitchells Plain and No 1 Sportica Crescent, with a combined value of R1.42bn.

The group reported more than 2.1-million shoppers at its Sable Square and Maynard Mall shopping centres over the period. The retail portfolio remains skewed to convenience and commuter-driven spending, with no reliance on tourism, Spear said.