One mistake South African property investors should avoid

Investing in South African commercial property can deliver strong long-term returns and diversification, but experts warn that investors should avoid speculation.

This is because success depends on informed decisions about location, demand trends, asset type, regulatory factors, and economic signals.

Paul Stevens, CEO of Just Property, explained that there are core considerations when investing in South Africa’s commercial real estate.

First and foremost, it is important to choose the location wisely. While location remains a fundamental driver of commercial property value, this goes beyond simply considering position.

“In 2025, it’s not just about visibility or accessibility; it’s about anticipating where investment is heading and aligning with that momentum,” Stevens said.

“Look out for areas undergoing infrastructure upgrades, precinct developments or special economic zone designations.”

For example, the Westown precinct in Shongweni, KwaZulu-Natal, is transforming into a major lifestyle and commercial node with the support of eThekwini Municipality and the private sector.

Projects like these bring in roads, fibre connectivity, water security and power infrastructure – the kind of groundwork that makes a location viable for decades.

“Cape Town continues to outperform much of the country in terms of governance, safety and service delivery.” The Western Cape government has consistently invested in transport corridors, clean energy, and urban regeneration.

This has resulted in increased investor confidence and steadily declining vacancy rates in prime offices and mixed-use nodes.

Stevens advised that property investors should also pay careful attention to vacancy rates, as these are a leading indicator of demand.

A high number of vacancies puts pressure on rental growth and may suggest an oversupplied or underperforming submarket.

Conversely, low vacancy rates support stronger rental escalations and indicate a more competitive tenant pool. “In the office sector, for example, we’re seeing a recovery in key urban centres.”

“Prime office space in Cape Town’s CBD and decentralised nodes such as Century City is approaching historically low vacancy levels after a sustained period of contraction and hybrid work adjustments.”

In contrast, the retail market is no longer performing uniformly, and a growing gap is emerging between the strong and weak performers.

Smaller, neighbourhood convenience centres with high foot traffic, like grocery-anchored shopping centres, are doing well and remain in demand.

However, large-format shopping malls are facing challenges due to changing consumer behaviour, the rise of e-commerce, and increasing operating costs.

“If you’re considering investing in retail, look for assets that offer a mix of essential services, grocery retail and lifestyle offerings and pay close attention to tenant composition and turnover,” Stevens said.

One sector leads the pack

Stevens explained that one segment of commercial property investing has consistently outperformed over the past five years: the industrial sector.

“The pandemic-era acceleration of e-commerce created a structural need for warehousing, last-mile logistics and flexible distribution facilities. That demand hasn’t waned. In fact, it has matured into a broader trend.”

According to the Rode Property Report, as reported in Property Wheel, nominal gross market rentals for South Africa’s industrial space of 500m2 grew by 6.7% in Q4 2024 compared to Q4 2023.

Rentals were approximately 23% higher than the pre-pandemic levels in 2019. This growth was driven by logistics providers, FMCG distributors and manufacturing operators seeking modern, energy-efficient premises close to key transport routes.

“When assessing industrial property opportunities, proximity to arterial roads, ports, and freight hubs is vital,” Stevens explained.

“So, too, is flexibility of use – a building designed for one tenant type is more risky than a multipurpose facility that can serve several industries.”

Green features, such as solar PV and rainwater harvesting, are becoming increasingly important. Many people now view these as requirements, rather than just value-added features.

According to Stevens, development-led investors should look for land with the correct zoning already in place, or with realistic prospects of rezoning.

Land banking in areas earmarked for future expansion can yield substantial returns, but only if the proper groundwork has been done. “Understanding bulk rights, building lines, parking ratios, and environmental overlays is essential.”

“So is engaging early with municipal planning departments to understand precinct plans, transportation frameworks and timelines for service rollouts.”

He noted that redeveloping underutilised commercial buildings is another emerging trend, particularly in older business districts.

However, retrofitting comes with risks, such as compliance with new energy and fire regulations, heritage approvals, or the cost of upgrading old systems to modern standards.

“These projects can be highly lucrative, but they require detailed feasibility studies and the right professional team,” Stevens said.

Follow the money

Stevens also stressed the importance of following the money. Municipal data on building plan approvals can provide insight into where private developers are placing bets.

“If you notice an uptick in industrial plans being passed in a particular node or mixed-use precincts gaining traction in a suburban area, it’s a sign of confidence and forward-looking demand.”

Investors should take note of where plan approvals are declining, especially in
overtraded sectors.

Other economic signals, such as interest rates and lending appetite, are also worth looking into before investing in commercial real estate, which is capital-intensive.

The South African Reserve Bank began cutting rates in late 2024, but global uncertainties have slowed further reductions.

Lending rates are expected to stay stable in 2025, with banks maintaining cautious loan practices and capping loan-to-value ratios at 65% to 70% for new developments.

“Having equity or access to patient capital is a competitive advantage in this environment. It also underscores the importance of robust due diligence, clear business cases and tenant pre-commitments when seeking finance.”

Since commercial property is cyclical, Stevens said that timing is crucial. Different asset classes perform better at various points in the cycle.

Currently, offices, particularly high-spec buildings in decentralised areas, are recovering, while retail remains stable in neighbourhood centres but faces challenges in large malls.

Industrial property continues to lead, especially in logistics hubs, while sectors such as hospitality and student housing are gaining interest as tourism and in-person learning rebound.

Finally, Stevens emphasised that investors should be aware of the regulatory environment, encompassing compliance and zoning requirements, as well as tax implications.

“This includes being aware of legislation such as the Property Practitioners Act and municipal bylaws, which affect everything from agency mandates to electricity resale.”

“Operational risks, too, must be factored in. Load shedding, water insecurity and municipal inefficiencies remain real challenges in parts of the country.”

He added that, where possible, investments should be made in properties with backup power, water storage, and good management. These features boost tenant demand, rental growth, and retention.

Stevens said that the commercial property market rewards informed decisions, not guesswork. Success stems from understanding cycles, targeting key growth areas, and collaborating with experienced brokers to unlock long-term value.

“If you’re willing to take a measured approach – guided by real data, local knowledge and sector trends – there are excellent opportunities to be found in 2025 and beyond.”