South Africans kiss work from home goodbye

South Africans are increasingly returning to the office for work, as seen in South Africa’s office market recovery.

Rode’s Report for the fourth quarter of 2024 showed that South Africa’s office market recovery continued in the past year. 

“We say so as the results of Rode’s survey show that vacancy rates have declined further, while rentals are also up,” the report explained.

It found that weighted gross market rentals for decentralised grade-A space rose nationally by 4.2% in nominal terms in the fourth quarter of 2024 compared to the fourth quarter of 2023. 

This is better than the year-on-year growth of 2.7% recorded in the third quarter of 2024.

The report revealed that rentals have improved from the big declines seen during the Covid-19 lockdowns. This is when the popular work-from-home trend hit South African office demand. 

However, the fourth quarter of 2024 marked the first time rentals exceeded 2019 levels, albeit marginally. This shows a widespread move away from work from home in South Africa.

“Even with the recovery in nominal market rentals, listed property players in the fourth quarter still mostly reported negative office rental reversion rates,” the report explained. 

Negative office rental reversion rates refer to a situation where newly signed office lease agreements, typically for renewals or new tenants, have lower rental rates than the expiring leases.

“The reason is that contractual rentals have escalated by between 6% and 8% per year, much more than the market rentals reported by Rode,” the report said.

“However, we have observed that the decline in reversions has generally become smaller.”

Rode’s report further found that Cape Town has been at the forefront of the national office market recovery. 

The city’s decentralised rental growth moved into double-digit territory in the fourth quarter of 2024.

Rode said demand for offices is strong in many nodes, such as the V&A Waterfront and Claremont. 

“The city’s perceived better governance, lifestyle, and a more reliable power – and water – supply may have boosted demand,” it said.

Cape Town’s decentralised growth in market rentals accelerated to 11.5% in the fourth quarter of 2024, up from 8.5% in the third quarter. 

In addition, the city’s fourth-quarter rental level was 18% higher than pre-Covid levels. 

Encouragingly, Rode’s fourth-quarter rental and vacancy data also show that demand is picking up in Durban and, to some extent, Johannesburg.

Durban’s rental growth is showing promising signs, with nominal growth picking up to 6.2% in the fourth quarter of 2024. 

Rental growth in the city averaged 5.2% in 2024, the second best of South Africa’s major cities. 

The report explained that Cape Town’s and Durban’s stronger rental performance is in line with Rode’s vacancy rate data, which shows that vacancies are the lowest in these two cities.

It said rental growth in Gauteng remains slow due to elevated vacancy rates. “However, we have noted that Johannesburg’s decentralised rentals are picking up from low levels,” it said.

In Pretoria, decentralised, nominal grade-A rentals increased by 1.3% year-on-year in the fourth quarter of 2024.

However, the fourth-quarter rental was still about 5% below the pre-Covid level, as vacancies generally remain elevated. 

“All-in-all, fourth-quarter rental growth in all major cities, except Cape Town, was not fast enough to outpace building-cost inflation, which is growing by about 8%.”

Overall, the Rode report concluded that the South African property market continued to improve in 2024. “Indeed, more green shoots are emerging across the various property types,” the report said. 

Some of these green shoots include –

• An evergreen industrial sector that continues to impress.
• Rising nominal retail sales.
• Accelerating nominal office rentals, even in some pockets outside Cape Town.
• A further decline in flat vacancy rates and more housing sales activity.

However, the report explained that there are still some ways for the local property sector to do this. 

In real terms, rentals remain in negative territory due to the sharp increase in construction cost inflation. 

In addition, many well-known issues continue to plague the sector, such as rapidly rising operating costs, inadequate municipal service delivery, and infrastructure problems. 

“Therefore, there is ample room for recovery,” it said.