Warning for South African commercial property investors
South Africa’s economy and property markets appear to have turned a corner, with much better outcomes expected in 2025 compared to the past decade.
However, market indicators suggest the fundamentals underpinning the turnaround in the local property market are on shaky ground.
This is feedback from FNB Commercial Property Finance property strategist and senior economist John Loos, who outlined what might be in store for the local property market in 2025.
Loos explained that 2024 felt like a turning point for the South African economy, with inflation and interest rates coming down and load-shedding seemingly coming to an end.
This was coupled with much-improved investor sentiment towards the country on the back of the formation of the Government of National Unity (GNU) in the middle of the year.
“Improved longer-term economic growth is crucial for the property market after the past decade-and-a-half of broad economic stagnation had brought with it a significant correction in property markets,” Loos said.
Low net operating income and slow capital value growth since 2015/16 have negatively impacted the commercial property sector and the returns of some of South Africa’s largest real-estate investment trusts.
Using MSCI property data and a GDP inflation rate to adjust it into real terms, net operating income in 2023 was down 11.8% on its 16-year high reached in 2016, while average capital value/square metre was down 21.7%.
Signs that this might change came in 2024, with inflation declining to a low of 2.9% in November 2024 – below the Reserve Bank’s 3% to 6% target range.
As a result, it began cutting interest rates in September 2024 and has reduced the repo rate by a cumulative 50 basis points so far.
FNB’s forecast for further interest rate cutting is moderate. Three further 25 basis point rate cuts are projected in the first half of 2025, and the prime rate is expected to bottom at 10.5%.
This could provide a mild boost to the highly credit-dependent property market, Loos said. The residential side of the market is arguably more interest rate-sensitive than the commercial property side.
Furthermore, declining interest rates and improvements in the provision of electricity are expected to boost economic activity.
Driven by these factors, FNB’s forecast is for moderate growth improvement, projecting an increase from 1% GDP growth in 2024 to a more optimistic 1.9% in 2025.
Thus, Loos expects the commercial property market to moderately strengthen in 2025, with vacancy rates declining and net operating income growing by a projected 4.2%.
Growth in capital value/square metre is forecast at a lower single-digit rate of 3.6% in 2025, up from the 3.5% forecast for 2024.

However, when these figures are adjusted for inflation, they translate into no growth or a decline in real terms, with inflation for 2025 forecast at an average of 4.4%.
Loos explained that this shows how fragile the local property market is right now and that any negative shock could push the sector back into negative territory in real terms.
In the latter half of 2024, business appeared to be moderately “buying in” to the positive economic and policy signals.
While still weak, the RMB-BER Business Confidence Index strengthened from a lowly 30 reading to a slightly better 45. A reading above 50 indicates positive sentiment.
The SARB Composite Leading Business Cycle Indicator also showed modest strengthening, suggesting the possibility of a mild near-term economic growth uptick to come.
From a 9.3% year-on-year decline in June 2023, by April 2024, it had gradually returned to positive growth territory, achieving a modest but positive growth rate of 1.8% in October 2024.
Mortgage lending also picked up towards the end of 2024, with Reserve Bank data indicating that it had returned to positive growth.
However, more recent economic data releases since late 2024 have been less reassuring, with financial markets having grown increasingly cautious about the global economic and inflation outlook.
A key factor in this growing uncertainty is the looming Trump presidency in the US, with possible tariffs having a potentially significant impact on emerging markets.
Furthermore, local data does not look as positive as initially expected, with South Africa’s third-quarter GDP reading indicating much slower growth than predicted.
More recently, in December, the two most up-to-date high-frequency data releases, which are regarded as “leading business cycle indicators”, showed signs of further slowing.
New passenger vehicle sales and the manufacturing PMI’s New Sales Orders component also showed signs of slowing.
New passenger vehicle sales growth slowed from 19.5% year-on-year in November to 7.9% in December, while the PMI New Sales Orders Index dropped from a 2024 high of 54.8 in September to 37.4 in December.
These high-frequency indicators don’t point to the economy entering 2025 on a solid footing.
This is exacerbated by weakened market expectations for further interest rate cuts by the US Federal Reserve, driven by strong labour market data suggesting higher inflationary pressures.
As a result, the Reserve Bank is likely to be even more cautious in cutting rates throughout 2025, limiting the potential tailwinds for local property.
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