Marcel Golding.
Gallo Images/Trevor Samson
- Vacancies more than double Texton’s legacy office portfolio.
- Transnet Ports Authority did not renew the lease, which contributed significantly.
- Texton cannot replace tenants at the same rate that offices are being vacated.
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Texton Property Fund, led by trade unionist-turned-businessman Marcel Golding, is struggling with its older office asset base, with vacancies in its core South African portfolio more than doubling in the year to June.
The JSE group, which released its annual results on Friday, said the vacancy rate in its core SA portfolio increased to 22.3% from 10.5%, mainly due to the Transnet Ports Authority not renewing its lease and other “buildings that are rented by one person”. consolidation and reduction of their office space.”
The company also said that during the year it “was unable to replace office tenants at the same rate as our offices vacated.”
“The office space market has changed significantly and our vacant offices will need to be repurposed and repurposed before we can re-let space in the current market.”
A delay in replacing tenants, as well as the sale of direct property assets in the UK, meant profits came under pressure, Thaxton said, with distributed earnings down 44.2% to 27.40 cents a share for the year to the end of June.
Citing the Transnet Port Authority not renewing the lease, Lukman Hameed, Ninety One’s portfolio manager, said that even if Transnet decided to sign another agreement, the rent would be much lower, as the annual increase in the existing rent would have resulted in much above average rental market growth in a weak office market.
At the same time, he said Texton has an “older range of lower quality offices” in its portfolio, which are properties that feel “the most” in the South African market, Hamid said.
Vacancy problems in the office sector are related to both the trend towards more working from home, which has gained momentum in the midst of the pandemic, and the oversupply in the market that existed even before the advent of Covid-19 as a result of the boom in speculative development. A sluggish economy has also compounded the challenges of the office real estate market, with few new businesses starting or expanding amid rising interest rates and economic uncertainty.
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However, Texton, which has a directly held property portfolio of 2.6 billion rand, declared a total dividend of 17 cents, although this was less than half the 37.47 cents in the previous financial year.
Overall rent collection in South Africa “remained flat” at 97%, while collection in the UK portfolio sat at 100%.
Green shoots for premium offices
The latest vacancy survey released last week by the commercial real estate association the South African Property Owners Association (Sapoa) showed that while the new P (premium) and A grade office segments have seen green shoots, vacancies in the older so-called B offices – the class of offices was still increasing.
The Sapoa office vacancy survey reported that office vacancy rates in South Africa improved slightly in the third quarter of 2022 after reaching a new high in the previous quarter. The quarter-end vacancy rate now stood at 16.4%, down 30 basis points from the quarter.
The survey, which sampled 3,065 office properties in 52 nodes and 18.9 million square meters of gross leasable area, found that “in line with the overall improvement in office vacancy levels, there was positive net take-up across all property classes with the exception of class B, who had a slight deterioration of 20 b.
The biggest improvement was in prime offices, up 120 basis points to 12%, as “residents’ flight to quality appears to be gathering momentum as the price gap between P and A grade offices has narrowed over the past few years”.
