Rental pricing problem in South Africa’s property market

South Africa’s commercial property market has reached a rental escalation ceiling, with most tenants unable to sustain increases above 4%, raising significant lease renewal and vacancy risks.

This was revealed by the inaugural 2026 Voice of the Commercial Tenant Report, released by the TPN Credit Bureau.

This is the first comprehensive survey of its kind to engage directly with 950 respondents across the retail, office, industrial and mixed-use sectors.

The report revealed that the risk of non-renewal is no longer just a concern for struggling businesses but a structural reality for the ‘neutral’ majority.

While 40% of tenants expressed satisfaction with their premises, a significant 38% reported being in a neutral holding pattern.

This cohort represents a renewal risk – tenants who are currently compliant and paying but lack the loyalty or financial headroom to absorb traditional 8% escalations.

These tenants are monitoring costs carefully and structurally positioned to exit at the next renewal if market conditions or landlord flexibility do not improve.

The country’s commercial property market has reached an escalation ceiling, with more than 50% of tenants saying annual rental increases of 4% or more are no longer sustainable in the current economic climate.

The biggest threats to commercial property lease renewals stem from high rental costs, escalating utility expenses, a lack of transparency in municipal billing and internal property issues.

The report found that the commercial landscape is being redefined by smaller, more agile organisations. A clear trend toward right-sizing is evident.

Nearly half (47%) of all tenants secured spaces ranging from 100 m² to 500 m². This was followed by the micro-occupancy segment, where 29% of tenants occupy premises of less than 100 m².

This move toward efficiency is a direct response to the twin pressures of high rental costs and escalating operating expenses, which together account for nearly half (46%) of the challenges tenants face.

These two factors – acute price sensitivity and space contraction – are the defining forces currently reshaping the landlord-tenant relationship and challenging traditional property investment models.

Office sector defies global trends as retail struggles

While the global narrative has often focused on the demise of the office, the South African context tells a different story.

The office occupier sector is a surprising positive outlier in the report, with 34% of office tenants reporting a satisfaction rating of 4 out of 5.

This is the highest share across all sectors. Office tenants are also the most confident, with nearly 39% reporting a positive economic outlook.

In contrast, the retail sector remains fragile, with tenants reporting a more negative economic outlook (33%) than the national average.

Satisfaction in retail is heavily concentrated in the “neutral” category (over 40%), suggesting that confidence in physical retail is thin.

The report noted that, for retail occupiers, rental increases are increasingly felt alongside rising utility costs and flat consumer demand, making them the most sensitive to renewal risk if trading conditions worsen.

Across the board, commercial tenants are facing difficulties. Beyond the direct cost of rent, the report found significant frustration regarding government, municipal and state dependencies.

Challenges linked to electricity supply, poor infrastructure maintenance and municipal service delivery failures account for 30% of reported operational hurdles.

These issues, while often outside the landlord’s direct control, are becoming a primary driver of tenant dissatisfaction.

Industrial tenants, for instance, reported the highest impact from electricity supply issues (18%), reflecting the critical importance of power for operational continuity.

Storage and office tenants, meanwhile, expressed elevated concerns regarding building upkeep and municipal maintenance, suggesting that facility management is becoming a key differentiator in tenant retention.

There is also a clear dependency between effective facility management and perceived utility supply challenges, transferring municipal ownership to landlords if buildings are not maintained in line with the tenant’s expectations.

The renewal risk, growth constraints, and technology

The report suggested that renewal outcomes are no longer driven primarily by lease terms, but by perceived experiential value.

The highest-risk group for a landlord is not necessarily the vocal, dissatisfied tenant, but the one who is ‘neutral’ in their satisfaction and facing a probable escalation of 5% or more.

It also noted that even a 15% to 25% share of higher-risk tenants can materially affect vacancy levels and income stability.

Uniform escalation strategies that intend to protect long-term, predictable property asset income are increasingly viewed as high risk in the short and medium term.

For tenants, the findings stress that when landlords demonstrate flexibility and responsiveness, tolerance for cost pressure improves.

When asked to identify the three biggest barriers to business growth, 22% of respondents cited the broader economic climate, including weak demand and subdued consumer spending.

This was followed by utility costs (17%) and regulatory complexity (13%). Interestingly, transport and logistics (4%) and exchange rate fluctuations (5%) ranked as the least impactful growth barriers for the majority.

This suggests that businesses have adapted to these logistical and currency volatility hurdles but remain strangled by the cost of simply keeping the lights on.

Technology adoption is emerging as a potential catalyst for growth. Around two-thirds of tenants reported that tech adoption over the past year had a positive impact on their efficiency.

However, the report also noted that many tenants have been slow to adopt the very tools that could address internal cost pressures and utility management.

Ultimately, TPN said the report is an urgent call for a shift from a transactional mindset to a proactive partnership model. Tenants explicitly associate strong landlord engagement with greater stability and a willingness to renew.

Issues such as rental affordability, billing transparency and maintenance quality are no longer just nice-to-haves but are key pillars of a functioning property-dependent economy.

“The central message of this research is that managing sentiment early is the difference between stable income and avoidable vacancy,” said TPN Credit Bureau director Waldo Marcus.

He explained that renewal outcomes are increasingly driven by a tenant’s perception of value and real affordability.

“For the commercial property sector to remain resilient, the wider ecosystem must address the core pain points – rental flexibility, infrastructure reliability and proactive engagement,” he said.

“As renewal risk builds among neutral-rated tenants, the ability to interpret these sentiment signals will be the difference between maintaining occupancy and facing rising vacancies in the years ahead.”

Commercial landlords who identify and engage with cost-sensitive tenants ahead of renewal will be the ones to successfully navigate this fragile local and global economy.