Commercial property boom in South Africa

The Covid-19 pandemic brought with it a period of exceptional stress in South Africa’s commercial property industry.

This period was characterised by high vacancies, an increase in distressed sales and, understandably, a healthy dose of investor caution. Since then, the sector has shown remarkable resilience.

In 2024, off the back of the formation of the Government of National Unity, the easing of load-shedding and declining interest rates, investment volumes soared to more than R27 billion. This is up 34% since 2023.

On 27 May 2025, the South African Property Owners Association (SAPOA) noted that global property investment returns had rebounded strongly in 2024.

According to SAPOA’s Global Property Trends Report for the 2024 financial year, this marked the end of a two-year downturn.

“Performance across countries varied with total returns ranging between – 0.8% in Australia to 11.5% in South Africa – the top global performer for the year,” SAPOA explained.

However, Just Property CEO Paul Stevens stressed that successful property investments depend upon making informed decisions and avoiding speculation.

“Commercial property can offer significant long-term returns and portfolio diversification, but success in the market is rarely accidental,” he said.

According to Stevens, there are a few key metrics potential investors should consider before jumping into the commercial property market.

The first is location. As is true of residential property, location is a key factor in commercial property value.

“But in the modern context, this is about much more than just visibility and access. It’s crucial to identify where investment is growing and align with that momentum,” Stevens said.

In South Africa, the Western Cape continues to lead the charge in terms of governance, safety and service delivery, but in general.

He advised that investors look for infrastructural upgrades, new business precinct developments and special economic zone status. This status indicates an area has been set aside for specific economic activity and emerging growth nodes.

Vacancy rates

When it comes to commercial property, Stevens pointed out that vacancy rates are another key indicator of market health.

Tracking them helps investors and property owners anticipate changes in demand and rental growth. This allows them to make informed choices about buying, selling or developing property.

Low vacancy rates are an indicator of good market health. Strong demand means most spaces are occupied, which can lead to higher rentals and increased investment activity.

Conversely, high vacancy rates suggest either an oversupplied market or weak demand. This puts pressure on rental growth, often forcing property owners to reduce rentals or offer concessions to secure tenants.

According to SAPOA’s Office Vacancy Report Q1 2025, South Africa’s office vacancy rate edged down marginally to 13.6% in the first quarter of the year.

“Prime-grade offices led the recovery, with vacancies dropping by 80 basis points to 6.8%, its lowest level since the vacancy peak in mid-2022,” the report said.

“A-grade offices experienced a marginal increase of 20 basis points, rising to 12.2%, while B-grade vacancies remained flat at 16.8%. C-grade space recorded a slight improvement of 10 basis points, easing to 15.8%.”

Stevens explained that the office sector is rebounding in major urban hubs. Prime Cape Town CBD and Century City spaces are nearing record-low vacancies following a prolonged post-pandemic downturn.

According to SAPOA’s report, Johannesburg Metro remains the city with the highest overall office vacancy rate.

Stevens said that the retail landscape is sharply divided. SAPOA’s Q1 2025 Retail Trends Report noted that trading density reached a record high of R42,374/sqm, 22% above its pre-pandemic peak.

While growth momentum is slowing, retail turnover is outperforming broader economic indicators and remains a positive signal for landlords and investors.

While neighbourhood convenience centres are thriving, large malls are facing challenges due to shifting shopping habits, online competition and higher costs.

SAPOA urged retail investors to prioritise properties with essential services, grocery and lifestyle tenants, and closely monitor tenant mix and turnover.

SAPOA reported that vacancy rates across major centres improved significantly from the 2021 peak, ending Q1 2025 at 4.9%. This is up slightly from 4.5% in Q4 but well below the March 2021 high of 7.1%.

“Gross rental growth remained positive at 3.7% YoY, compared to 3.1% in the previous quarter, as landlords faced reduced pressure to offer discounts. Community centres led the improvement with a drop from 4.1% to 3.9%.”

Industrial real estate

Industrial real estate is a hot commodity in South Africa, and shows strong potential thanks to a growing demand from the e-commerce, logistics and manufacturing sectors.

According to the Rode State of the Property Market Report’s data for the first quarter of 2025, industrial property continues to outperform its non-residential counterparts – office and retail – with strong rental growth and low vacancy rates.

According to PropertyWheel, nominal gross market rentals for South Africa’s 500m2 industrial space grew by 7.3% in Q1 2025 compared to Q1 2024. This growth rate exceeded the 6.7% recorded in Q4 2024.

When evaluating industrial property, Stevens said that choosing sites close to major roads, ports, and freight hubs is essential for efficient logistics.

“Investors should opt for buildings that can serve multiple types of tenants, as single-use facilities are more vulnerable to shifts in tenant demand,” he said.

“Features like solar power and rainwater harvesting are now a necessity as opposed to a ‘nice-to-have’, as sustainability becomes a standard requirement for many businesses.”

Georgina Smit, Head of Technical at the Green Building Council of South Africa, pointed out that the MSCI Index data proves that certified office buildings can be more profitable.

“Stakeholders such as investors and those in sustainable finance are paying attention, and it’s becoming a clear competitive advantage,” Smit said.

Zoning and development

Stevens explained that owning land in areas marked for future growth can be profitable, but only if investors do their due diligence.

“Investors focused on development should prioritise land that already has the appropriate zoning in place or that has a good chance of being rezoned,” he said.

“It is crucial to understand factors like bulk rights, building lines, parking requirements and environmental constraints.”

He added that early engagement with municipal planning departments can clarify precinct plans, transport networks and timelines for essential services.”

Transforming outdated commercial properties, especially in established business areas, is becoming increasingly popular.

While these renovations can be profitable, they also present challenges such as meeting updated fire and energy codes, obtaining heritage permits and modernising ageing infrastructure.

These projects can only be lucrative if investors make use of thorough planning, cost analysis, and regulatory foresight.

Stevens stressed that commercial property is cyclical, and different asset classes perform differently depending on where we are in that cycle.

“Understanding these dynamics can help investors ride upswings and avoid over-exposure in downswings,” he said.

A solid understanding of compliance, zoning, tax obligations, and key legislation is essential for commercial property ownership.

“Ultimately, the commercial property market rewards those who invest with insight rather than speculation,” Stevens added.

“Success hinges on diligent research: understanding market cycles, targeting areas with robust fundamentals and working alongside seasoned commercial brokers to identify opportunities and unlock lasting value.”

Issued on Daily Investor by Kirsten Minnaar | https://dailyinvestor.com/property/98626/commercial-property-boom-in-south-africa/