Banele Ginindza

The private commercial property sector has agreed that the government could achieve savings through better management of its property portfolio, calling for an urgent audit to curb unwarranted and wasteful expenditure.

This follows remarks by Parliament’s Portfolio Committee chairperson, Songezo Zibi, who said on Monday during a pre-budget economic cluster media briefing that the government was paying over the odds in rental costs.

Zibi highlighted that departments in the government’s social cluster account for more than 50% of leased space, with these leases typically involving larger offices - exceeding 2000m² - primarily in central business districts (CBDs) and main centres, at an average rental rate of R126/m². Leases for departments in the Economic and Governance Clusters, meanwhile, range between 1 500m² and 1600m² at an average of R120/m². Just over 20% of total rental expenditure relates to leases that have expired and are now operating on a month-to-month basis.

"Based on market benchmarks, it is estimated that about a third of monthly expenditure is on leases, the cost of which is above market norms. Most of the expenditure above market is in the CBD and Main Centres, and just under 90% of the expenditure above market was in six provinces. Just under 80% of these leases are in the CBD & Main Centre that are above market. Potential savings were estimated to be in the range of R600 million to R1.2 billion over three years," Zibi said.

Estienne de Klerk, the chairperson of the SA REIT Association and South African CEO of Growthpoint Properties, said the association acknowledged concerns about the government’s property costs and supported a more structured and efficient approach to portfolio management. While cost savings may be achievable through improved leasing strategies, he said there was a need to ensure that service delivery remains effective and uninterrupted.

De Klerk said where government leases exceed market rates, particularly in key urban centres, a proactive approach - such as renegotiating leases, rationalising the portfolio, and aligning costs with market benchmarks- could drive efficiencies.

"However, it is also essential to recognise that leasing remains a more cost-effective and efficient solution for government than owning office space outright. The maintenance and management of state-owned properties place a significant financial and operational burden on the government, which is often unaffordable. If the government were to accommodate all its space requirements through ownership, it would require billions in capital investment, making leasing a more practical approach," De Klerk said.

Neil Gopal, the CEO of the South African Property Owners Association, cautioned that the impact of restructuring or more efficient management of the government’s property portfolio was not a clear-cut case.There are likely instances where the government requires accommodation for line departments in geographical areas where it owns no buildings, necessitating rentals from the private sector, he said.

"Only an overall assessment of the portfolio can answer this question, but in principle I strongly agree with the sentiments that the government must look at the expense side to rein in unwarranted and wasteful expenditure," Gopal said.

De Klerk suggested that to optimise its property portfolio, the government should conduct a comprehensive audit of leases to identify inefficiencies, expired agreements, and opportunities for restructuring.

"At the same time, the government should assess its owned assets and ensure they are optimised - this includes selling non-strategic, generic properties and ensuring that retained buildings are fully utilised and well maintained," he said.

He proposed a strategic leasing approach, including a centralised and coordinated leasing framework to improve consistency, pricing, and negotiation leverage across departments and provinces. In a longer-term lease planning scenario, he added, the state could secure extended leases where appropriate to achieve better pricing and reduce exposure to fluctuating market conditions.

He also recommended an efficient space utilisation strategy, optimising space through consolidation, shared workspaces, and flexible occupancy models to eliminate inefficiencies.

"The location strategy should ensure lease decisions align with service delivery needs while exploring cost-effective options beyond prime CBD locations where feasible. A disciplined approach to lease management, combined with strategic ownership decisions, could enable cost efficiencies while ensuring that government operations remain effective," De Klerk said.

A well-structured approach to government property management would have several implications for the private sector, he added. Encouraging market efficiency through a more disciplined leasing approach could drive greater transparency and ensure competitive pricing across the sector. Reducing government dependency on premium CBD locations may shift demand to other market segments, potentially stimulating growth in secondary locations and flexible office solutions.

While cost adjustments may occur in the short term, De Klerk argued that a structured government leasing strategy would ultimately contribute to a more balanced and sustainable property market.

"The private sector could play a role in assisting the government with portfolio optimisation, space planning, and asset management solutions. By adopting a more strategic, market-aligned leasing approach and optimising its owned portfolio, the government can achieve cost efficiencies while supporting the long-term stability and competitiveness of the broader real estate sector," De Klerk said.
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