Property Flash


January 25 2024

For Swindon Property

Durban operation poised for increased activity in 2024

While South Africa’s economy remains constrained following a year (2023) of headwinds and challenges that consumers, business and industry alike have had to contend with, including increases in electricity tariffs and municipal fees, Swindon Property has seen strong trading in its Johannesburg and Cape Town markets in the second quarter and third quarter, while its Durban operation is poised for an uptick in activity in 2024.

Andrew Dewey, MD of Swindon Property said: “Not surprisingly, given its infrastructure and world-class environment, Cape Town continues to draw investors. While we noted a slowdown in demand for development opportunities, which resulted in very low bulk rate values, we are optimistic that this will increase and improve in 2024, affording sellers the opportunity to trade both greenfield and brownfield opportunities”.

“Encouragingly, consumer inflation subsided in Q2, reaching a 14-month low in June 2023. A more controlled inflationary environment and the potential for interest rate cuts in 2024 bode well for facilitating economic recovery. Currently, with no fluctuations in the repo rate creating stability in the market, sellers are more accepting of current capitalisation rates, while buyers are optimistic about seeing improved performance in 2024 – with potential rental and reduced gearing upside across the board,” he said.

Mark Govender, a professional valuer for Swindon Property said: “As a general overview, the industrial property market continues to outperform the office and retail sectors, while in the office sector, improved vacancy rates are exerting upward pressure on rentals and therefore on capitalisation rates. In the retail sector, convenience shopping centres of 5 000 to 15 000sqm are still a hot commodity with single-digit selling yields in most instances”.


According to a recent Rode Report, average capitalisation rates in grade A, multi-tenanted office properties in SA of 11.1% in quarter three are still well up from the pre-Covid (2019) level of just under 10%. The upside is that these rates have not deteriorated further – possibly as vacancy rates have improved from high levels. As the report points out, this sector is still experiencing an oversupply in the face of sluggish economic growth prospects and the ongoing impact of the work-from-home trend. Regionally, capitalisation rates improved in Cape Town, but is weakening in Pretoria and trending sideways in Johannesburg.

According to the South African Property Owners Association’s latest office survey results, the national office vacancy rate improved for a fourth consecutive quarter, reaching 15.6% at the end of quarter two, down 50bps from quarter four 2022.

Within core markets, overall vacancy rates ranged between 9% and 19%, as reflected in Cape Town and Johannesburg, respectively. Johannesburg, Durban, and Cape Town all improved their vacancy levels over the first half of 2023, with total available supply nationally falling to 3-million square metres.

“At present there is approximately 125 000sqm of committed new development nationally, with activity concentrated in Cape Town. Continuing improvements to vacancy levels are likely to slow if the economy is to stay on its stagnated path over the short to medium term. Typically, economic growth of at least 3% year on year is required for meaningful take-up levels to be recorded,” says Dewey.

In terms of office rentals, although Rode’s nominal market data indicates a continued recovery from the low Covid levels, increases are slowing and office rentals in real terms continue to look bleak. Listed property funds are also still reporting large negative rental reversion rates. The important point remains that many companies are still working on a hybrid basis, favouring two to three days a week at the office, which means less demand for space compared to pre-Covid levels. Furthermore, office demand will not see a sustainable turnaround without much stronger economic growth.

Industrial Sector

“As mentioned,” says Dewey, “of the three major non-residential property types, the industrial property market is still best placed. Within this sector, demand fundamentals remain robust across a wider range of submarkets when compared to offices. This is due to its low vacancy rates, resulting in stronger rental growth. Nominal gross market rentals for space of 500sqm grew by 3.8% in the quarter three of 2023 compared with the third quarter of 2022. This is slower than the 4.1% year-on-year growth recorded in the second quarter of 2023 and was the third consecutive quarter of weaker growth. This was to be expected, given weaker economic growth and in particular the pressure on the manufacturing and retail sectors. In real terms, rentals are still declining due to high building cost inflation.

Regionally, capitalisation rates remain the lowest (best) in Durban and Cape Town. Cape Town continues to see strong rental growth and low vacancies due to solid demand. In Durban, rentals have been boosted by low stock levels in the aftermath of the 2021 riots and flooding in 2022.

Retail Sector

The retail property market made a strong comeback in 2022 but has been under pressure in 2023 to date as evidenced by the weaker retail sales performance and higher mall vacancy rates. This no doubt played a role in brokers’ perceptions, with capitalisation rates of regional shopping centres showing an upward trend of late.

To illustrate, real retail sales on a national level fell by 2.1% year on year over the first seven months of 2023, while mall vacancy rates rose to 5.6% in the second quarter of 2023 from 5% in the fourth quarter of 2022.

“This weak confidence data is not surprising, given expectations of weaker consumer spending amid high interest rates and elevated prices of food and fuel. This will continue to put upward pressure on retail capitalisation rates in the short term. Anecdotal evidence that the consumer is under significant financial pressure, is that the demand for solar power installations on houses has now slowed, although the demand by corporates is strong,” says Swindon.

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