How will the electricity price hikes impact you as an occupier?
March 11, 2019

Last week The National Energy Regulator of South Africa (NERSA) announced electricity price hikes of 9.41%, 8.1% and 5.2% for the next three years. This, as predicted, will have a significant impact on the commercial property sector, particularly for industries that are already sensitive to parastatal price increases.

Our CEO John Jack shares how Galetti has for some time revised its approach when it comes to property acquisitions, with a strong focus on advising our clients in terms of total occupancy costs. A key goal for us is to ensure that occupiers don’t feel the impact of price increases on their bottom line, such as electricity rate hikes. As an example, in many instances we have worked alongside our clients to allow them to upgrade their properties without any increase in total cost.

The bigger picture

By looking at a total cost scenario we can often move tenants to newer more efficient buildings without increasing their overheads. New buildings are often found in more sought after nodes which allows the business to attract top talent, a consideration which is usually top of mind when looking for new premises.

As an example, these are a few of our biggest green focused properties:

  • 90 Grayston Drive, a property with a GLA of 18 000m2 and a 4-star green rating
  • 90 Rivonia Road, with a GLA of 12 700m2 and a 4-star green rating
  • Alice Lane, with a GLA of 30 000m2 and 4-star green rating
  • Monte Circle, a large property with a GLA of 73 000m2 and a 4-star green rating
  • Knightsbridge Office Park, with a GLA of 32 000m2  and a 4-star green rating

Electricity prices significantly impact total occupation costs, and so occupiers consider such costs carefully. As an example, electricity on average for a newer P-grade building costs approximately R12 to R18 per square meter per month whereas an older building with poor energy efficiency can cost as much as R50 per square meter per month.

Our figures show that Green star buildings have far shorter vacancy periods than older buildings, and energy efficiency/cost is a direct contributor to this.

According to Simon Wilkins, Galetti Head of Global Corporate Services:

“We are seeing a growing demand from our corporate clients looking to minimise occupational costs across their property portfolios. Reducing rental costs is a core focus at Galetti, but it is always done in partnership with the reduction of other significant cost items, such as electricity consumption, to maximises savings. We use our data to compare properties and their full occupancy costs rather than simply the rental costs normally quoted in the market. This information provides the full picture to our corporate clients and eliminates the risk of being blind-sided by unexpected costs such as the recent electricity rate increases.”

Investor confidence

We can expect investor and business confidence to be negatively impacted with the news of the price increase. The knock on cost directly affects profits margins, specifically in the mining and manufacturing sectors. This will lead to a tougher trading environment across the commercial property sector.

The good news is that the increase is far less than what Eskom already proposed, which will soften the blow slightly. We can thank NERSA for this, unlike the Rail Transport industry which is unregulated.