Market Trends of South Africa Commercial Real Estate Industry
Increasing Demand for Office Space in South Africa
South Africa has seen its historically robust office fundamentals erode significantly over the past years. Vacancy rates have steadily risen as corporate consolidations and the rise in work-from-home result in more space being given up in the market. At the end of the second quarter of 2022, Johannesburg had the highest office vacancy rate across all major metropolitans.
The vacancy rate of office real estate increased across all major markets in South Africa between the Q1 of 2021 and the Q1 of 2022. Pretoria and the Surrounds had the lowest vacancy rate of 12.1% in 2022. On the other hand, Johannesburg had the highest share of vacant office space at over 19%. Office demand dynamics have shifted considerably as many corporations continue to scale down on space requirements in line with the new work-from-home and office rotational hybrid models.
Office demand dynamics have continued to soften as corporates look to scale down on space requirements in line with new work-from-home and office rotational hybrid models. The net effect is that office foot count has declined significantly from pre-pandemic levels. While office fundamentals are expected to soften over the foreseeable future, qualifying tenants may find great opportunities to secure favorable long-term lease arrangements.
Increased Growth in the Industrial Segment Creating Opportunities for the Market
The prime industrial property had the lowest investment yield among different commercial real estate types in Cape Town, South Africa, in the first quarter of 2022. Yield measures the expected return of an investment property and is calculated as the annual rental income divided by the property value. Investors expected a return on investment of 8.25% for prime industrial properties, while for rental housing, this figure was 9.5%.
According to JLL’s data, Pretoria, the Surrounds, and Cape Town were the South African markets with the lowest average vacancy rate for industrial real estate in the first quarter of 2022. During that quarter, approximately 4.9% of industrial real estate was vacant. In Johannesburg, this share was slightly higher at 4.95%.
According to industry experts, the industrial property sector was the only sector experiencing increased premium rents in Cape Town, South Africa, from 2020 to 2022. From USD 5.5 in the first quarter of 2020, industrial space's monthly square meter rent grew to USD 6.9 in the first quarter of 2022. On the other hand, rental rates for retail space halved during the period.
