Property boom as South African companies kiss work from home goodbye

With more South Africans returning to the office as work-from-home loses its lustre, the country’s commercial property market is set to experience a boom going into 2025. 

Based on improving sentiment, Savills World Research projects global real estate investment to rise by 7% to $747 billion (R13.34 trillion) in 2024, with further growth to US$952 billion (R17 trillion) forecast for 2025. 

This was explained by Andrew Dewey, MD of Swindon Property, Savills’ commercial associate in sub-Sarahan Africa.

Similar findings have been seen by South Africa’s largest property investor, Growthpoint, which has shown a strong improvement in its office portfolio, with vacancy rates declining and rent reversion improving.

The property investor explained this past quarter was the first since Covid-19 when none of its tenants had reduced space in its office developments.

“According to Savills, this recovery is anticipated to gather momentum in 2025, and by 2026, global activity is expected to surpass the $1 trillion (R17.81 trillion) mark for the first time since 2022,” Dewey said. 

“Central banks across major economies have begun to cut policy rates, fears of a global recession have largely been quelled, and occupational markets remain resilient.” 

Real estate fundamentals continue to attract institutional investors, who have increased their market share to the highest level since 2021.

Savills reported that much of this initial growth is supported by a recovery in Europe. 

With all major central banks in the region having started rate-cutting cycles in the summer, commercial real estate is looking a lot more attractive.

“A key trend noted by Savills is that commercial real estate is advancing, with more intelligent buildings that enhance working environments and drive net-zero initiatives,” he said.

Tenant experience and satisfaction have also become increasingly important in the fight for talent and the drive to encourage employees back to the office.

“In addition, the prevalence of hybrid working has heightened this need as office attendance has shifted towards ‘peak days’, a trend which requires smart management of spaces and facilities.” 

“In Europe, office attendance is highest on Tuesdays – reaching 68% occupancy – and lowest on Fridays, at 43%, according to Savills’ figures, with a similar pattern observed in the US,” Dewey said.  

“While no such data is available for South Africa, we have seen that the ‘return to office’ drive has helped cut vacancy levels in the office sector.”

Dewey said in terms of trends, the industrial market still outperforms both retail and office space due to higher demand in both letting and buying. 

According to Rode, the industrial property market continues to shine, with nominal rental growth accelerating further in Q3 2024, amid continued low vacancy rates of 3.6%, lower than the long-term average of 4.2%.

“Generally speaking, across the commercial property markets, while the two recent interest rate cuts of a cumulative 50bps have had a positive impact, showing optimism of a downward cycle, the balancing act between the current high cost of debt and return on investment is still making it hard for buyers’ gearing.”

“The level of distressed sales has therefore increased in 2024, which has been seen specifically in the auction sector.”

“Regionally, while Cape Town continues to outperform Johannesburg and KwaZulu-Natal, Johannesburg remains the GDP capital with the majority of our larger transactions still taking place in this province.”

Also according to the latest Rode Report, SA’s office market recovery continued in Q3, with Cape Town at the forefront with strong demand in many nodes, such as the V&A Waterfront and Century City. 

The Mother City’s Q3 rental level was 16% higher than pre-Covid levels. Durban performed second best so far in 2024, driven by the La Lucia/uMhlanga node, while recovery in Gauteng has been slower.

“Positively, Rode notes that recovering business confidence and a low level of new office construction activity augurs well for the office sector’s prospects nationally, particularly in light of the GNU, consistent power supply and declining interest rates,” Dewey explained. 

“Rode cites the reason for the low building activity as high vacancies due to the work-from-home trend, over-building in the decade before the pandemic, and slow economic growth.”