The office market will never be the same again due to the impact of the Covid-19 pandemic which is forcing many people to work from home, according to JSE-listed Growthpoint Properties.

He also warns that the feasibility of new real estate developments is eroded by administered costs, making it extremely difficult to commit to investments in new projects.

Growthpoint COO Engelbert Binedell said Growthpoint developments are “on hold” for a number of reasons.

“There are no tenants. The economy is in such a bad shape and there has been such an overhang of developed space that our developments are on hold, unless it is a catastrophic deal with a client or in a hospital or a residential space for students, ”he told the Council. Engineers South Africa (Cesa) Infrastructure Indaba last week.

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Binedell said occupancy cost was impacting Growthpoint rentals across all of its segments due to increased administered costs because “tenants can only pay a limited amount.”

Imbalance

He said that while a potential tenant can only afford to pay R100 per square meter and 60% of that amount is spent on administered costs, such as tariffs and taxes, charges for using electricity and water and Construction Industry Development Board (CIDB) levies, “this makes feasibility for new developments almost impossible.”

Binedell said Growthpoint, as the owner, wants and needs as many people as possible in their offices, but the reality is that a lot of people can do their jobs from home and prefer to work from home.

There has also been a huge surplus of developed office space and vacancies are at an all time high, which is of great concern, he said.

But Binedell said if the economy grows at predicted rates, there will be a slow use of that space.

“But the construction industry and real estate developers have certainly had to reconsider their thinking about whether or not to trigger development,” he said.

The human factor

Binedell said that for some people their job requires them to collaborate with other staff and those people “definitely want to come back to the office.”

He added that from Growthpoint’s perspective, the number of its employees suffering from stress and depression issues has increased dramatically due to “this very strange and difficult environment.”

“A lot of times your office is that family away from home, so this collaboration is very important,” he said.

“Not everyone can afford a three bedroom house with a garden where you can take a break when you are tired.

“If you’re stuck in a one-bedroom apartment on the third floor and have to eat, sleep and work in the same space, that’s just not conducive to good mental health and certainly not to productivity.

“These people have the desire and the desire to come back to the office.

“But you go [have to] change office. It’s going to have to be a better space, a nicer space, an entertainment space where people come back, ”he said.

Hybrid model

PwC chief economist Lullu Krugel said the real estate market is unfortunately not yet out of the woods and has yet to determine what things will look like in the future.

Krugel said the good thing is people are slowly but surely returning to their desks, but everywhere it’s a hybrid desktop model.

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“We want to be able to work from home sometimes and be able to come to the office on others. It will certainly happen.

“But I don’t know if it will ever come back to what we’ve seen before. It seems unlikely at this point that people will spend five days a week in the office, ”she said.

Not all pessimistic

Erwin Rode, CEO of real estate services firm Rode & Associates, previously told Moneyweb that he believes the impact on the commercial real estate industry of employees working from home is likely overestimated.

“It’s not like 50% of people are going to work from home in the future.

“I guess no more than 20% of people who previously worked in the office will still be working from home after the pandemic,” he said.

Rode also questioned the sustainability of companies allowing their employees to work from home.

“It’s great to work from home while you know your staff and they know you and your company culture, but when people quit and you appoint new people and they start working at home, it’s harder to create a corporate culture and train people, ”he said.

“Absolutely exorbitant” costs

Binedell spoke of the impact of the “absolutely exorbitant massive contributions” that must be paid on the financial viability of new projects.

He said Growthpoint pays around 1.2 billion rand in rates and taxes to local authorities per year, around 1.4 billion rand in electricity costs, 128 million rand for water use and 5 million rand in CIDB direct debits.

He said Growthpoint has also invested to create 11,000 megawatts (MW) of solar power, which is growing and its goal is to increase it to 20 MW.

It costs Growthpoint 25million a year just to run its buildings. He had to dig 77 boreholes where there was not enough water to maintain his particular properties; and had to commit for seven years to its insurers to modernize the reservoirs of many of its properties where the water pressure supplied by the council is insufficient.

“Then you can add a whole host of other risks. If it’s not Covid-19, it’s Eskom. If it’s not Eskom, it’s looting.

“With [regard to] lack of skills, people migrate and people migrate to other areas. The concerns and risks are getting more and more difficult, ”he said.

Infrastructure, a problem

Binedell said the infrastructure has already failed to a very large extent, although there are pockets of excellence.

He said that in certain geographic nodes and cities, you can see things are working and you can see that is where the investments are heading.

Binedell said Growthpoint divested from nodes where it had had infrastructure issues, which is unfortunate, but was unable to manage its properties due to infrastructure issues and additional occupancy costs. in higher.

He said Growthpoint would like to engage even more with local authorities and those responsible for infrastructure because he believes that by working together they can make a difference.

“We have reached out because our skills are available, but it seems like a one-sided conversation, which is slightly disappointing,” he said.

However, Binedell said Growthpoint remains bullish – and because the economy is starting from a weak base, he believes there are still fantastic opportunities for the future.