Bad news for South Africans who rent

South Africa’s property market is expected to see residential rents rise by around 5% in 2026 amid severe supply shortages and high construction costs, while commercial rentals are projected to increase by around 3%.

TPN Credit Bureau director Waldo Marcus said both South Africa’s residential and commercial property markets will be defined by deepening supply constraints and rising compliance pressures.

“A persistent shortage of residential rental stock is the primary driver of predicted rental price growth,” Marcus explained.

“TPN predicts residential rental escalations will hover between 4.5% and 5.5% for 2026. This upward trend is supported by provinces like Gauteng, which is expected to see continued positive growth in key residential nodes.”

However, while the residential market is growing, the country’s commercial property sector, particularly office space, has faced headwinds.

This sector, Marcus said, is expected to continue seeing downward rental growth, with escalations expected to drop to approximately 3%.

“However, specific asset types, particularly in storage, industrial hubs and convenience retail, are showing optimism,” he said.

While residential rental stock shortages in the Western Cape are expected to ease, the issue of affordability remains paramount, and rental growth is anticipated to slow.

The fourth quarter of each year typically sees a surge in shorter-term rentals in the province, driven by both local and international tourism, Marcus noted.

“Gauteng, on the other hand, is expected to continue its upward trend in rental escalations, partly mitigated by the growing trend of commercial-to-residential conversions,” he said.

Rental escalations in the Eastern Cape are expected to remain flat, while those in KwaZulu-Natal are projected to continue on an upward trajectory, albeit at a slower pace.

Rental growth in these provinces is driven by the high demand for secure estates along the coastline, Marcus explained.

High construction costs and national infrastructure projects

The lack of available rental supply, particularly in the residential market, will continue to push prices up in 2026, Marcus said. “The core issue is the prohibitive cost and complexity of new construction.”

South Africa’s property market is currently facing high construction costs, coupled with the liquidation and business rescue of numerous construction companies.

This means new stock will enter the market at a significantly higher price point, limiting solid returns on investment.

“The combined pressures of high construction costs and a shortage of skilled construction labour will limit the scale of new private developments,” Marcus said.

“The commercial property oversupply in Gauteng – particularly in the office space – is being addressed creatively through commercial-to-residential conversions (retrofitting).”

This strategy, Marcus said, is more cost-effective and requires smaller, more adaptable construction methods as opposed to expensive fit-out allowances and net new building infrastructure and approvals.

He added that the government’s emphasis on national infrastructure projects will limit private sector growth, while wider economic stagnation may lead to quick, reactive regulation.

South Africa’s budget prioritises infrastructure development and refurbishment, which diverts resources, such as construction capacity and tax revenue, that are needed for private development.

The result, Marcus pointed out, is that private developers will be required to invest heavily in bulk infrastructure.

“This additional cost will act as a major constraint on returns for new projects, which will, in turn, be passed on to the consumer as higher rentals to achieve a return on investment,” he said.

According to Marcus, small interest rate reductions – with be two more 25-basis-point cuts expected for 2026 – are also not expected to stimulate property purchasing as predictably as in the past.

This is due to household uncertainty and backlogs in expenditure. “Regulations are expected to be more reactive and rapidly pushed through to compensate for failures in economic growth,” he added.

“This includes attempts to regulate high-return sectors such as short-term rentals and building plan red tape, which create additional compliance pressures on both residential and commercial landlords.”

Additional oversight, such as Competition Commission approval for the sale of larger commercial assets, is likely to add process and compliance pressure, Marcus explained.

These requirements will also slow down free-market transactions, which free up capital to drive new developments.