South Africa Commercial Property Market Shows Signs of Recovery

For the past seven years, South Africa’s listed property sector has struggled due to a combination of economic weakness, rising vacancies, COVID-19 lockdowns, higher interest rates, and ongoing utility challenges, including load-shedding. This created a tough environment for property owners and led to investor caution. However, a shift is underway, with early signs of recovery emerging in 2024.

• REIT returns surge over 50% in 2024, signalling growing confidence in the commercial property market amid economic recovery and easing load-shedding.
• Vacancy rates decline in Western Cape, with increased office demand driven by the ‘semigration’ trend and improved national sentiment and interest rates.
• Strategic, disciplined investment offers value in the current market, with low property prices and rising demand setting the stage for future growth.

Signs of Recovery

In 2024, REIT returns have surged over 50%, signaling growing confidence in the market. The Western Cape is seeing a turnaround, where offices that sat vacant just 18 months ago are now fully occupied. This is driven by factors like the ‘semigration trend’, improved national sentiment post-GNU, reduced load-shedding, and the first-interest rate cuts in years.

Corporate demand for office space is also on the rise, with companies increasingly insisting on in-office work, creating further opportunities. Gauteng, the economic hub of South Africa, still has high vacancy rates, presenting potential value for investors.

Unlocking Value

Despite the oversupply of commercial space, there is significant value to be unlocked in the current market. As vacancies decrease and economic sentiment improves, properties purchased at current low prices are expected to appreciate. The upcoming recovery presents enticing prospects for investors with a long-term perspective, particularly as the market stabilizes and new developments become more feasible.

Disciplined, Sustainable Growth

Geoff Jennett, CEO of Emira Property Fund, notes that while market sentiment may sometimes overshoot fundamentals, disciplined, long-term investors will focus on strategic capital allocation. Emira, for example, recently sold its Cape Town portfolio at what it considered "fuller value" and reallocated the capital to Poland, where property values are undervalued and there are strong growth prospects.

Jennett explains, “When market dislocations create opportunities, that’s the time to move. We’re focusing on acquisitions where economics are suppressed and deploying capital for long-term value creation.”

The Road Ahead

The recovery of the South African property market is still in its early stages, but signs are promising. Reduced vacancies, increasing demand for office space, and strong REIT performance indicate that the sector is on the mend. While challenges remain, particularly around infrastructure and operational hurdles, savvy investors are already capitalizing on emerging opportunities.

The stage is set for a long-awaited recovery in the commercial property market, with listed property stocks offering substantial value for those with a discerning eye for opportunity.