Redefine’s office vacancies forecast to fall to single digits next year

After years of double-digit vacancies in its expansive office portfolio, Redefine Properties says it expects vacancies to fall below the psychological 10% level in FY2027, as the SA office property sector improves.

The property giant, which has an overall portfolio in SA and Poland valued at over R101 billion – around R22 billion of that being SA office sector assets – shared the upbeat view in its Capital Markets Day (CMD) and pre-close briefing on Wednesday in Sandton.

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Redefine notes in the CMD presentation that “vacancies are expected to reduce to below 10%”. This is “on the back of leasing and the sale of non-core properties with vacancies”.

It says SA is seeing strengthening real estate fundamentals, as confidence improves in the sector and broader economy with traction on SA structural reforms.

The group, which owns landmark office properties like Alice Lane in Sandton and The Towers (formerly Standard Bank Centre) in Cape Town’s CBD, is targeting lowering its office vacancies to 7.5% by the last quarter of its 2027 financial year.

This means it is aiming to reduce its office vacancies by a further 25% by the end of FY2027. Redefine’s financial year ends on 31 August annually.

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“Improving market conditions with lower vacancy rates are expected to drive year-on-year NOI [Net Operating Income] and valuation growth,” it highlights.

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The group’s rent reversions are still in negative double digit territory, with a forecast of -12.5% by the end of FY2026, however, even this metric is showing improvement compared to -12.9% in FY2025.

Redefine says in its latest CMD presentation that there is “limited large tenant reversion risk in the next 24 months”.

Scott Thorburn, Redefine’s office sector asset manager, later confirmed to Moneyweb that the group’s office property vacancies were last in the single digits back in 2018, at around 9.5%.

“Redefine’s office sector historical vacancy low was 7.2% in 2014… The portfolio makeup was very different back then compared to now,” he says.

The group still had several B-grade office buildings then, but today it predominantly owns P-grade and A-grade offices.

Redefine Properties’ share price

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Commenting on Redefine’s CMD and pre-close presentation, independent property analyst Keillen Ndlovu says the group did well by selling weaker or B- to C-grade assets (non-core buildings) before the Covid-19 pandemic, and ahead of most peers.

“It has continued to sell weaker or non-core buildings – an asset recycling effort which has put it in a better position in the office property market,” he adds.

SA’s current average office vacancy rate is just over 12%, while Redefine’s is around 150 basis points lower than this, according to Thorburn.

“The office sector has continued to see vacancies decline after peaking during the pandemic. Office vacancies were rising even before the pandemic because of oversupply and a weak economy,” says Ndlovu.

“After several years of negative rental reversions, we’re probably seeing the last phase of major negative rental reversions in the office sector as leases expire and come up for renewal.

“There has also been no new major supply for several years, and there’s limited, if any, speculative building. Working from home is no longer an issue, as policies are fully entrenched in company policies – that means it’s fully in the numbers,” he adds.

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