Founder: Turnaround Talk
We have been hearing the warnings since the Comair liquidation announcement. The price of air travel in South Africa will skyrocket. I am planning to visit my family in Durban in September; when I looked at the price of flights in June, it would have cost my family (2 adults and a child under 12) between R3 000 and R4 000 for a return ticket. I looked at the prices in July, the same trip will now cost over R7 000. When I questioned Dr Joachim Vermooten about the price increase he said it was because business travellers are gravitating towards hybrid online meeting platforms as a cost-effective alternative. Another sign of Covid disruption; however, this one may be permanent.
This disruption is being felt in other sectors. Another change instituted by Covid was that online meeting platforms, and the increased connectivity that South Africa went through since 2010, has proven that employees can work from home. This placed many office buildings under significant pressure with landlords scratching their heads about what the future of work means for their business.
Permanent disruption
The News24 article points out that, according to the latest data from Discovery’s Work From Home Index, the hybrid work model is indeed in full swing in South Africa.
The index shows that most of the insurer’s clients travel for an average of three days per week between work and home. Work and home addresses have become the two most common destinations for most people whose data Discovery Insure analysed.
In fact, most banks have adopted flexible or hybrid work policies. In the case of Standard Bank, most staff have to show up in the office at least eight days a month. Only “resident workers” like branch employees and other client-facing staff need to travel to their place of work every day. But most staff fall under the category of “hybrid workers”.
Photo By: SAPOA
The article adds that during the hard lockdown in early 2020, driving came to a complete halt for most people. As people were forced to work from home, trips to work in April dipped to around 10% of what they used to be before the pandemic. As lockdown restrictions eased, people started driving more.
Trips between home and office dipped every time SA was in the middle of another wave of Covid-19 infections, up until the fourth wave. But since January 2022, those dips are significantly smaller. Trips between work and home have returned to over 70% of pre-pandemic levels.
And yet, despite the apparent return to the office, vacancy rates in Johannesburg remain high. Sandton, the largest office node in the country, saw its office vacancy rate improve only marginally in the second quarter to about 20% for grades A+, A and B space combined – against 21% in the first quarter.
This is a significant disrupter for many and was a major pain point in the Edcon business rescue where the retailer and the South African Property Owners Association (SAPOA) engaged in a war of words.
The article points out that the empty office space in Sandton alone totals about 410 000m², which in terms of magnitude is close to the whole gross leasable area (GLA) of Randburg or of Century City in Cape Town.
In the CBD of Johannesburg the office vacancy rate is about 21%. In Parktown and Midrand it is 22%.
The News24 article points out that, according to the latest report by property consultants and valuers Rode & Associates, which covers the second quarter of this year, the vacancy rate in Johannesburg’s CBD was 11% before the pandemic in 2019, but “has come under immense pressure” as Anglo American and the Minerals Council of SA vacated their offices and moved to Rosebank.
Rosebank and Randburg/Ferndale have some of the lowest office vacancy rates in the city at 12% and 15% respectively, while Waterfall, a node that used to have some of the lowest vacancy rates in Johannesburg over the past few years, had a vacancy rate of 17% in the second quarter of 2022.
This is a significant disrupter for landlords.
Cape Town had an average vacancy rate in the second quarter of about 16%. Of the major office nodes in Cape Town, vacancy rates remain the highest in Claremont Upper and Century City (just above 20%).
“Worryingly, Tyger Valley vacancy rates are also approaching 20%. Vacancy rates were the lowest at the V&A Waterfront (10%) – the pacesetter node in Cape Town,” said Rode.
The average office vacancy rate in SA for A+, A and B grade offices in SA remains well above the 10.5% average of 2019 before Covid-19 hit South Africa.
The article adds that Rode believes grade B and especially C office space – usually older buildings – will be increasingly converted mostly to residential space, but also other uses like educational, religious, medical and storage – “but only where it is financially and practically feasible”.
Photo By: Canva
Hybrid here to stay
The trend appears to be unlikely to be reversed any time soon, with many people happy to keep a hybrid work model instead of returning to the office full-time. Discovery Insure CEO, Anton Ossip, said there’s a sense of a “newfound freedom” where people choose when they go to their work locations, especially during waves of infections.
The News24 article points out that, right now, a large percentage of Discovery Insure clients are still not going to their work consistently on the same days each week. This disruption makes it hard to validate having a permanent office.
“This points to a changed pattern of expectations whereby more workers are enjoying increased levels of flexibility in their workday,” said Ossip.
The article adds that Ossip said his analytics team has been watching the change in people’s movement patterns with keen interest since the March 2020 lockdown and paying closer attention to during peaks and dips of the infectious waves.
“Our interest isn’t at all random or purely for curiosity’s sake. As an insurer seeking to protect our clients from risk, it is important to understand how these risks are changing or emerging over time and how this impacts our clients,” said Ossip.
The Work From Home Index uses Discovery Insure’s telematics driving data to look at how the insurer’s clients have shifted from “working predominantly from home” to returning to the office.
The article points out that Discovery determined the home location by looking at where its clients spent the night hours of most weekdays. It also based this on the end location of their last driving trip for each day. It defined the work location by looking at driving trips linked to a specific location and back home within a day.
But to be sure this was for work purposes, the clients needed to have left their homes in the morning on a weekday and stayed in the other location for several hours before returning home by the end of the day. This has disrupted the analytical models used by many insurers to rate their clients/potential clients risk.
According to Ossip, findings revealed that in the last few months, around 80% of people were spending at least some time at their ‘work’ locations again, compared to data on pre-pandemic levels.
The article adds that, by contrast, the trend was to be home-based between March and May 2020. He believes this could also have been influenced by the fact that more people got vaccinated during the second half of 2021.
