Industrial property in South Africa shines with stellar 15.1% returns amidst global supply chain shifts
South Africa's commercial property market delivered another robust performance in 2024, posting a third consecutive year of capital growth and its best total returns since 2015.
According to the MSCI South Africa Property Index, sponsored by Absa, the sector achieved a total return of 11.9% for the 12 months ending December 2024 — the highest total return across the 24 countries in their global index.
The sustained recovery of commercial property in South Africa reflects strengthening property fundamentals and fewer local headwinds from political uncertainty following the formation of the Government of National Unity (GNU), the easing of load shedding, and the onset of a local interest-rate cutting cycle.
The retail sector, representing 60% of the MSCI Index by value, delivered a 12.1% total return in 2024, up from 9.7% in the prior year. Consumer spending was supported by moderating inflation, lower interest rates, the introduction of the two-pot retirement system, and a suspension of load shedding.
Footfall momentum is strong, increasing by 2.1% year-on-year in Q4, marking consistent growth since December 2021. While super-regional and small regional centres approach pre-pandemic visitor levels, larger regional centres remain below December 2019 levels on a 12-month rolling basis.
Demand drives returns
South Africa's commercial-property sector continued to demonstrate strong fundamentals in 2024, with robust tenant demand, improved operating metrics, and sector-leading returns.
The retail segment saw stable vacancies and healthier tenant affordability, supported by a 4.5% annualised growth in trading densities for institutionally owned shopping centres, according to SAPOA's Q4 2024 Retail Trends Report.
Encouragingly, gross rent-to-sales ratios improved to 6.7% — their best level in over a decade — bolstering positive rental reversions across most listed retail landlords.
Meanwhile, the industrial-property sector, accounting for 11% of the MSCI index, outperformed with a stellar 15.1% total return, up from 11.3% in 2023. This was driven by low vacancies, tenant-led developments, and surging demand for modern logistics space amid ongoing supply-chain realignments and onshoring trends.
These dynamics reflect renewed investor confidence and the sector's operational resilience, setting the tone for South Africa's standout performance on the global stage.
The industrial outlook remains resilient, with the supply of available space constrained by tight vacancies and elevated construction costs, while demand is underpinned by geopolitical factors driving increased inventory requirements.
Offices show resilience
The office sector, which comprises 29% of the MSCI index, showed tentative signs of recovery in 2024. Modest capital growth contributed to a 9.4% total return, nearly doubling the 4.9% achieved in 2023.
Performance across sub-segments varies, with recovery driven by stronger operational performance in coastal markets such as Cape Town and Umhlanga, and rising demand for higher-grade buildings (P- and A-grade).
Vacancy rates edged down, with MSCI reporting 15.8% office vacancies in December 2024, compared to 16% a year earlier. In this environment, base rentals declined slightly, but average office-rental reversions improved.
With a strong link between GDP growth and office-sector performance, occupancy and rentals are expected to remain muted unless broader economic growth boosts leasing demand.
While the strong performance of the South African commercial property sector in 2024 was underpinned by the positive base effect of fewer headwinds, the focused effort by commercial-property landlords to optimise their standing portfolios has supported the improvement in operational KPIs – as evidenced by MSCI's performance indicators.
We believe the South African property sector is well-positioned to deliver stable income returns in the near term. However, outperformance will be significantly influenced by key macroeconomic factors, including South Africa's economic growth trajectory, political stability, interest-rate environment, and global trade dynamics.
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