Durban’s Dynamic Shift in the Office Market
The office market in Durban has undergone a dynamic shift over the past eighteen months, emerging as a bright spot in South Africa’s overall office landscape. While the office sector across the country continues to face challenges from the long-term effects of the COVID-19 lockdown and the widespread adoption of remote and hybrid working models, Durban has largely defied these trends, particularly outside its central business district (CBD).
South Africa's commercial real estate sector, particularly offices, has been under immense pressure since the onset of the pandemic. Many businesses adapted to remote working and hybrid models, resulting in declining demand for office space across the country. The knock-on effect of this is still being felt in major metros across the country, where vacancies are high and rental rates have stagnated.
Contrary to the many reports highlighting the rise of remote work as well as the hybrid models throughout the country, Durban’s office market has shown resilience, with businesses maintaining or increasing their demand for traditional office spaces. This contrast between the struggling CBD and thriving suburban office areas highlights Durban’s unique office market dynamics, where economic recovery, tenant migration, and operational challenges outweigh the influence of remote and hybrid working model trends as seen in other regions.
The suburban areas, such as Umhlanga, La Lucia, Durban North, Westville and Kloof have seen very few vacancies in high-quality office spaces. This low vacancy rate can be attributed to a combination of factors, including minimal new office development, high demand for premium space, and a growing shift in business preferences toward more affluent areas.
The absence of new office developments in recent years is concerning for some, as the demand for office space in these suburban nodes is starting to outstrip supply. However, for now, the lack of new developments has allowed existing office buildings to maintain high occupancy levels and for rental rates to recover significantly. Many landlords are experiencing strong demand for well-located, quality office premises, pushing up rental prices and stabilizing the office market. This recovery in rental rates, particularly in premium office spaces, signals that businesses are willing to invest in high-quality environments.
The growth in Durban's office sector can be attributed to several factors, with two key drivers standing out: the migration of business operations from deteriorating areas to more affluent suburbs and the significant increase in demand from the Business Process Outsourcing (BPO) sector.
The Migration of Business Operations from Deteriorating Areas To More Affluent Suburbs
There has been a significant shift as tenants relocate from the CBD and other deteriorating suburbs to more affluent suburbs. These areas offer better security, modern infrastructure, and a higher quality of life for employees, making them far more attractive to businesses than the deteriorating conditions in the CBD. The migration has had a profound impact on both the office sector and the broader economy, contributing to the steady decline of the CBD.
The Durban CBD has become increasingly unsafe and unsanitary, with many buildings suffering from lack of maintenance and high operational expenses due to aging infrastructure. Security concerns are prevalent, with frequent reports of harassment and crime in the area. Many office buildings have been converted into overcrowded apartment blocks, further straining already weak infrastructure and discouraging businesses from maintaining offices in the CBD.
Major events such as the COVID-19 lockdown, the 2021 riots, and the 2022 floods have eroded confidence in the CBD as a secure and viable business location. The looting, particularly by local residents, highlighted the socio-economic issues plaguing the area. The city's failure to address these challenges has accelerated the exodus of businesses seeking safer and more stable environments.
While there have been some redevelopment initiatives focused on repurposing old office buildings into residential spaces, these efforts have been limited in their impact. The conversions have not improved the office market, and the CBD remains burdened by high crime, severe urban decay and the lack of business confidence. Without significant improvements to safety, infrastructure, and economic conditions, a recovery in the CBD office sector seems unlikely.
Demand From The Business Process Outsourcing (BPO) Sector.
One of the more positive developments in Durban's office sector has been the increasing demand for Business Process Outsourcing (BPO) premises. Umhlanga has become an attractive destination for BPO operations due to several key advantages, including the availability of quality talent, location and time zone benefits, cultural similarities, language proficiency, and favourable cost dynamics. Labor cost savings, time zone alignment, and the abundance of highly proficient English-speaking talent are among the prominent factors that make South Africa, and specifically Umhlanga, an appealing choice for BPO operations.
The growth of the BPO industry has significantly boosted demand for office space, especially in suburban areas like Umhlanga and neighbouring suburbs, where modern, well-equipped office buildings are available. This surge in demand has reduced vacancy rates and pushed up rental prices in certain areas, contributing to the overall recovery of Durban’s office market.
The impact of the BPO sector on the office market is notable, as these firms often require large spaces to house their call centre and support operations. This has led to considerable leasing activity, helping to counterbalance some of the broader economic challenges faced by South Africa’s commercial real estate sector. Furthermore, the South African government’s prioritization of the BPO industry, with initiatives to create 500,000 jobs by 2030, has only added to the momentum. According to research firm “Growth Market Reports”, the local BPO sector is valued at $2.1 billion, with projections to reach $6.49 billion by 2031. This highlights the industry's growth potential in Durban and beyond.
However, this boom in the BPO sector is not without its challenges. The high volumes of employees in office buildings, which were not necessarily designed to accommodate such large numbers, can create operational and logistical issues. Overcrowding can strain building infrastructure, leading to problems with lifts, air conditioning systems, and general wear and tear. Moreover, the increased foot traffic and noise levels may cause friction with neighbouring tenants, particularly in mixed-use buildings where different types of businesses coexist.
These challenges underscore the need for purpose-built office developments in Durban that are specifically designed to accommodate BPO operations. Modern office spaces tailored to the unique requirements of high-density BPO environments would help alleviate pressure on existing buildings and create a more harmonious working environment for all tenants. As Durban continues to attract BPO firms, it is crucial that the city’s real estate development keeps pace with this growth, ensuring that future office spaces are equipped to handle the specific needs of this expanding sector.
Durban's office sector is currently a tale of two markets: the struggling CBD and the thriving suburban offices and office parks. The CBD has become a shadow of its former self, with security issues, deteriorating infrastructure, and a lack of investment driving businesses away. Efforts to revitalize the area through redevelopment initiatives have been limited in their impact, and the CBD remains an unappealing option for most businesses.
In contrast, the suburban office markets in Durban, particularly in outlying suburbs, have performed exceedingly well. With low vacancies, rising rental rates, and strong demand from sectors like BPO, these areas have become the preferred location for businesses seeking modern, secure, and efficient office spaces. The minimal new office development in recent years has further contributed to the strength of the market, as supply remains constrained.
Looking ahead, the performance of Durban's office market will likely continue to be driven by these contrasting dynamics. The CBD will need significant interventions to reverse its decline, while suburban areas are expected to continue attracting businesses looking for quality office environments. The challenge for Durban will be to find ways to bring the CBD back into the fold as a viable commercial centre, while also ensuring that the suburban office market can continue to meet the growing demand for premium office space.
Written by Ryan Berry 083 607 8128 / ryan@dealcore.co.za