Rode ‘State of the Property Market’ report.
Data indicates that South Africa’s property market continued to improve during Q4 2024 with more green shoots emerging across the different asset types, according to the latest Rode ‘State of the Property Market’ report.
However, in real terms, rentals remain in negative territory due to the sharp increase in construction-cost inflation. Furthermore, rapidly rising operating costs, inadequate municipal service delivery, and infrastructure problems continue to plague the sector – but there is ample room for recovery.
Despite the challenges posed by international trade tensions and kinetic wars, there is still optimism about interest rate cuts in South Africa however, analysts generally expect less cuts than before. If no additional interest cuts are made, interest rates will still average lower than in 2024.
The office market
South Africa’s office market continued its gradual recovery towards the end of 2024, supported by declining vacancy rates and rising rentals. Rode’s data indicates that the national weighted decentralised vacancy rate for grades A+, A, and B office space combined fell to 12.6% during Q4 2024, down from 14.4% in Q4 2023. However, this rate remains above the long-term average of 9.5% which implies that the market is still oversupplied.
Gross market rentals for decentralised grade-A office space rose nationally by 4.2% during Q4 2024, surpassing pre-Covid-19 levels for the first time with significant growth noted in cities such as Cape Town where nominal decentralised rental growth soared to 11.5% in Q4 2024 and Durban, where rental growth reached 6.2%. Rode found that the office market recovery in Johannesburg was slower due to elevated vacancies but even here, rental growth picked up to 3.3%.
However, listed property companies are still generally reporting negative office rental reversion rates as contractual rentals have risen by around 7% per year over the past few years, surpassing the growth rate of market rentals by a large margin. Rode has noticed that the declines in rental reversion rates have generally become smaller, signalling recovery.
The market has greater optimism about near-term prospects for the economy and rising business confidence points to the potential for further growth in the office market in 2025 although progress may be gradual due to expectations of modest GDP growth of under 3%.
The industrial market
According to the data, the industrial property market continues to be the best positioned among the three commercial asset classes which is attributed to low vacancy rates and rental growth. Nominal gross market rentals for South Africa’s industrial space of 500m2 grew by 6.7% in Q4 2024 compared to Q4 2023 with rentals approximately 23% higher than the pre-pandemic levels in 2019.
Rentals for space of 500m2 in Central Wits and Cape Town led the way in 2024 with Rode calculating growth in these conurbations topping 9% in Q4 2024 which indicates that rentals outpaced building-cost inflation.
Rental growth was also solid in the East Rand at nearly 7% while Durban (+2%) recorded the slowest growth among the major conurbations.
Rode found that the sector’s average vacancy rate was 3.7% in Q4 2024, lower than the long-term average of 4.2% however, it did edge up from Q3 2024.
The industrial property market has benefited from a more robust retail market i.e., online sales, and less speculative development compared to office buildings and shopping centres but the manufacturing sector remains under pressure.
The residential property market
Flat vacancy rates at a national level averaged 6% in Q4 2024, down from 6.3% in Q3 2024 with vacancy rates averaging 6.7% in 2024 – a decrease from 7.2% in 2023.
The decline in vacancy rates stimulated rental growth with nominal flat rentals having increased by 3.8% in 2024, up from 2.4% in 2023 (Stats SA data). However, this was lower than the CPI rate of 4.4%.
Shorter frequency data provides a better insight with flat rentals rising faster than inflation in the second half of 2024.
The Western Cape boasted the fastest flat-rental growth of 5.3% in Q4 2024, up from 3.5% in 2023. This improvement aligns with vacancy rates which have stabilised at the lower levels of 2% to 3% since 2023.
In the short term, a positive factor for the residential rental market is the high-interest rate environment which may continue to sway some potential buyers to rent instead.
As for house prices, 2024 was characterised by another year of ultra-slow growth amid the weak economy and elevated interest rates.
According to FNB, nominal house prices rose only 0.8% in 2024 however, underlying data from SARB, such as the value of mortgages granted, points to a pickup in demand.
Some factors boosting demand are lower inflation, improved consumer confidence, higher salaries, and a slight decline in interest rates.
Rode anticipates 2025’s house price recovery to be modest, as upside risks to global inflation and political uncertainties likely slow the pace of interest rate cuts.