Growthpoint group CEO Norbert Sasse says South Africa’s anaemic economic growth is holding back a meaningful recovery in office demand, while deteriorating infrastructure is causing some Gauteng office nodes to lose their appeal.
Sasse said areas such as Sunninghill, once an established office destination, had fallen out of favour, while Parktown had only recently emerged as an office node. He said the shifts were often linked to unreliable electricity and water, poorly maintained pavements and failing traffic lights.
“That is still, I’d say, our Achilles heel,” Sasse said of Growthpoint’s Gauteng exposure.
The weakness in offices contrasts with the stronger performance of the group’s retail and logistics businesses, which continue to underpin the South African portfolio. Vacancies across its directly held sectors fell to 7.2%, while like-for-like net property income rose 4.4%, led by retail and logistics.
“Sustained economic growth of about 2.5% or more is needed to drive meaningful gains in employment and office take-up, while hybrid working continues to reduce companies’ space requirements,” Sasse said.
Office leasing improved, but pricing remains under pressure, with lease reversions worsening to minus 6.3%, driven largely by Gauteng, where renewals were down 10.2%.
The group is taking a more selective approach to Gauteng, using a precinct-focused strategy to concentrate offices in locations with stronger economic growth and reliable infrastructure.
“We like the precinct approach because due to our relative position in those areas, we can control the narrative,” Sasse said, referring to efforts to improve pavements, roads and public spaces around its properties.
The group is also reducing its exposure to weaker offices, recycling capital towards logistics and industrial property, which now accounts for a larger share of its South African portfolio.
It sold properties worth R4.9bn in the year to June, while about R1.4bn of its financial year 2027 development pipeline is earmarked for logistics and industrial property, compared with R300m for offices.
“If you’ve got the right stock in the right place, in the right nodes, office property is actually fine,” Sasse said.
The V&A Waterfront remains a strong contributor, with the group’s half stake generating a 19% rise in distributable income to R964.7m, supported by stronger tourism and footfall.
Internationally, Growthpoint’s Australian office portfolio remained 96% occupied, though high interest rates and competitive leasing conditions continue to constrain growth.
Growthpoint expects distributable income and dividends per share (DIPS) to grow by just 1%-3% in financial year 2027, signalling a softer earnings outlook as the group recycles capital out of weaker assets.
According to Nedbank CIB property analyst Ridwaan Loonat the guidance was softer than expected, with financial year 2027 DIPS expected at 154.1c-157.2c a share, below Nedbank’s forecast of 158.6c.
“While the South African portfolio does provide a better earnings base, the benefit is being diluted by disposals,” Loonat said.
He said the softer outlook reflects Growthpoint’s capital recycling strategy, with the group planning to recycle R2bn-R3bn a year. The Discovery Phase 1 disposal alone is expected to dilute financial year 2027 DIPS by about 1%.
Loonat said offices remained the main drag despite improved leasing, with weak pricing, particularly in Gauteng, pointing to an uneven recovery. While the V&A Waterfront provided a stronger earnings contribution, part of the uplift came from a one-off residential profit.
The weakness in Johannesburg’s office market is mirrored in its wider commercial property market, which trades at about a R196bn discount to Cape Town, highlighting the growing divide in investor confidence between the two markets.
Business Day
Noxolo Majavu
www.businesslive.co.za
