Western Cape in ‘golden era’ as rest of South Africa lags behind

FNB senior property economist John Loos said the Western Cape’s economy is entering a ‘golden era’ as South Africans are increasingly semi-grating there to experience better service delivery.

While the South African economy as a whole – and therefore also the property market – has been largely stagnant for a long time, Loos said there are significant regional differences across the country. 

In particular, Loos said there are notable differences between the inland and coastal metros of the country.

“In the coastal metros, industrial property has performed significantly better than is the case in Johannesburg,” he said.

“Overall, the Western Cape market has been outperforming significantly, and that’s the sign of things to come for the foreseeable future.”

The Western Cape’s economy is entering an almost “golden era” wherein it outperforms the rest of the country. This is because Western Cape councils are performing far better than elsewhere in the country. 

“Increasingly, businesses and individuals are looking for regions where things work, where municipal services and utilities work better, and they’re finding it there,” he said.

There has been increased semi-gration to the Western Cape over the past two decades. This means the province is gaining and retaining skilled labour and better business expansions. 

Loos said investor confidence is also better in the Western Cape, and the province will, therefore, outperform others economically and from a residential and commercial property perspective for the foreseeable future.

South Africa’s property market

The office market in South Africa faces significant challenges, but there are some signs of hope, particularly in Cape Town, which saw a 13% increase in rental prices compared to 2022.

According to the Q2 2023 issue of Rode’s Report on the South African Property Market, the country’s office market is struggling due to an oversupply of office space. 

On a national level, rental prices for high-quality office space increased nominally by 3.5% in the second quarter of 2023 compared to the same period in 2022. 

According to the report, rental prices have stopped falling sharply like they did during the pandemic.

However, the current rental prices are still 3% lower than in 2019, before the pandemic, when adjusted for inflation.

In addition, the real change (nominal values deflated by BER Building Cost Index) in rental prices for A-grade decentralized office rentals in Q2 2023 is -5.8%.

Cape Town performed the best in rental growth, with a 13% increase in rental prices compared to a year ago. 

Pretoria and Johannesburg also saw some rental growth, but it was lower. Durban, on the other hand, experienced a decline in rental prices.

The average vacancy rate for high-quality office space combined was 14.5% in Q2 2023, slightly lower than the previous quarter.

This improvement is mainly due to less vacant space in Cape Town and, to a lesser extent, Johannesburg.