South Africa

South Africa’s property outlook for 2024

FNB property strategist John Loos said the outlook for South Africa’s commercial property market in 2024 is cautiously optimistic, but improvements in the sector may only be reflected in 2025. 

In the latest FNB Property Insights Note, Loos explained that the economic environment linked to the property market will improve mildly in 2024.

However, it will be associated with various traditional “leads and lags” and may only reflect in improved total property returns next year.

FNB expects economic conditions to improve mildly, with a forecasted increase in economic growth from 0.8% in 2023 to 1.2% in 2024. 

Global factors such as easing inflation and reduced power disruptions domestically are anticipated to contribute to this improvement. 

A mild interest rate reduction is also forecasted for the second half of the year, which is expected to give the property sector a significant boost.

FNB anticipates 75 basis points worth of interest rate cuts in 2024, leading to a decline in the prime lending rate from 11.75% to 11% by the end of the year. 

However, Loos said the timing of interest rate cuts may depend on inflation, which is expected to slow from 5.9% in 2023 to 5.2% in 2024.

“Inflation forecasts don’t come without risks. However, a key one being the Middle East Conflict,” Loos said. 

“Recent attacks on shipping in the Red Sea, and the resultant military response from the US and UK, pose risks to global supply chains, thus posing inflation risk.” 

“In addition, the broader tensions in the Middle East, including the Israel-Hamas conflict, pose an ongoing upside risk to oil prices should the conflict situation widen further.”

However, despite these risks, Loos said oil prices remain relatively “well-behaved” for the time being, at below $80/barrel for Brent Crude oil.

While there are positive signals for economic growth and interest rates, the commercial property market’s performance is expected to improve gradually. 

Credit-driven property buying and sales activity may recover in 2024 after interest rate hikes caused a slowdown in 2023. 

However, the improvement in rental space demand for commercial properties might take longer, Loos warned.

The rental market for commercial properties showed improvement following the 2020 lockdown, with a decline in the All Property Vacancy Rate. 

However, there might be a temporary increase in vacancy rates in 2024 due to the lagged impact of the interest rate hiking cycle that has been ongoing since 2021 on tenants.

“It could exert pressure on rental growth and thus on property income in 2024,” Loos said.

“Indeed, we had seen half-yearly All Property Total Returns (MSCI data) begin to decline in the first half of 2023 after prior post-lockdown strengthening, from 5% in the second half of 2022 to 3.5%.” 

“This decline was expected following significant interest rate hiking and economic slowdown at the time.”

He said the long-term “correction” in real commercial property values is also expected to continue in 2024.

“Real” in this context means that any potential capital growth will likely not keep up with general inflation, thus declining in “real” terms. 

By 2022, the real – inflation-adjusted – All Property average capital value per square metre had declined by 23% since the high reached in 2015. 

“This significant real value decline is in response to real net operating income also having declined significantly, with stagnant economic growth since a decade ago unable to support positive real net operating income growth, the latter which has thus also declined considerably since around 2015,” Loos explained.


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