Market Trends of South Africa Commercial Real Estate Industry
Increasing office space demand in South Africa
South Africa has seen its historically robust office fundamentals erode significantly over the last year. Vacancy rates have steadily risen as corporate consolidations and the rise in work-from-home result in more space being given up in the market. At the end of the second quarter of 2022, Johannesburg had the highest office vacancy rate across all major metropolitans.
The vacancy rate of office real estate increased across all major markets in South Africa between the first quarter of 2021 and the first quarter of 2022. Pretoria and the Surrounds had the lowest vacancy rate of 12.1 percent in 2022. Johannesburg, on the other hand, had the highest share of vacant office space at over 19 percent. Office demand dynamics have shifted considerably as many corporates continue to scale down on space requirements in line with the new work-from-home and the office rotational hybrid model.
Office demand dynamics have continued to soften as corporates look to scale down on space requirements in line with new work-from-home and office rotational hybrid models. The net effect is that office foot count has declined significantly from pre-pandemic levels. While office fundamentals are expected to continue softening over the foreseeable future, qualifying tenants may find great opportunities to secure favorable long-term lease arrangements.
Increased Industrial Segment Growth Creating Opportunities for the Market
The prime industrial property had the lowest investment yield among different commercial real estate types in Cape Town, South Africa, in the first quarter of 2022. Yield measures the expected return of an investment property and is calculated as the annual rental income divided by the property value. Investors expected a return on investment of 8.25 percent for prime industrial properties, while for rental housing, this figure was 9.5 percent.
According to JLL data, Pretoria and the Surrounds and Cape Town were the South African markets with the lowest average vacancy rate for industrial real estate in the first quarter of 2022. During that quarter, approximately 4.9 percent of industrial real estate was vacant. In Johannesburg, this share was slightly higher at 4.95 percent.
The prime industrial property had the lowest investment yield among different commercial real estate types in Cape Town, South Africa, in the first quarter of 2022, according to Knight Frank data. Yield measures the expected return of an investment property and is calculated as the annual rental income divided by the property value. Investors expected a return on investment of eight percent for prime industrial properties, while for rental housing, this figure was 9.5 percent.
According to Knight Frank, the industrial property sector was the only one that experienced an increase in prime rents in Cape Town, South Africa, between 2020 and 2022. From 5.5 USD in the first quarter of 2020, the monthly square meter rent of industrial space grew to 6.9 USD in the first quarter of 2022. Rental rates for retail space, on the other hand, halved during the period.
