Investing in South African commercial property: Top tips for 2025

Zawya

20-06-2025

In 2025, it's not just about visibility or accessibility; it's about anticipating where investment is heading and aligning with that momentum.
Strategic location remains the cornerstone of successful commercial property investment in South Africa — but the game has changed.
From mixed-use nodes like Cape Town's Century City to the transformative Westown precinct in KwaZulu-Natal, investors are looking beyond the traditional 'position, position, position' mindset. They're following infrastructure, governance quality, and development incentives as key indicators of long-term growth.
Whether you're a seasoned investor or exploring development opportunities for the first time, understanding what to look for – and what to avoid – is essential in building a resilient and profitable portfolio. Paul Stevens, chief executive officer of Just Property, outlines the key considerations when investing in commercial real estate:
1. Where investment flows, growth follows
Commercial property can offer significant long-term returns and portfolio diversification, but success in this market is rarely accidental.
Look out for areas undergoing infrastructure upgrades, precinct developments or special economic zone designations. The Westown precinct in Shongweni, KwaZulu-Natal, for example, is transforming into a major lifestyle and commercial node with the support of eThekwini Municipality and the private sector.
Projects like these bring in roads, fibre connectivity, water security and power infrastructure – the kind of groundwork that makes a location viable for decades.
Cape Town continues to outperform much of the country in terms of governance, safety and service delivery. The Western Cape government's consistent investment into transport corridors, clean energy and urban regeneration has translated into increased investor confidence and steadily declining vacancy rates in prime office and mixed-use nodes.
2. Demand and supply: read the vacancy rate, not the hype
Vacancy rates are a leading indicator of demand. High vacancies put pressure on rental growth and may suggest an oversupplied or underperforming submarket. Conversely, low vacancy rates can support stronger rental escalations and indicate a more competitive tenant pool.
In the office sector, for example, we're seeing a recovery in key urban centres. Prime office space in Cape Town's CBD and decentralised nodes such as Century City are approaching historically low vacancy levels, after a sustained period of contraction and hybrid work adjustments.
In contrast, retail is becoming increasingly bifurcated (split into separate and distinct parts). High foot-traffic neighbourhood convenience centres remain resilient, but large-format shopping malls are under pressure from changing consumer behaviour, e-commerce and rising operating costs.
If you're considering investing in retail, look for assets that offer a mix of essential services, grocery retail and lifestyle offerings – and pay close attention to tenant composition and turnover.
3. Industrial property: logistics still leads
If there's one segment that's consistently outperformed over the past five years, it's industrial. The pandemic-era acceleration of e-commerce created a structural need for warehousing, last-mile logistics and flexible distribution facilities. That demand hasn't waned. In fact, it has matured into a broader trend.
According to the Rode Property Report, as reported in Property Wheel, 'nominal gross market rentals for South Africa's industrial space of 500m² grew by 6.7% in Q4 2024 compared to Q4 2023 with rentals approximately 23% higher than the pre-pandemic levels in 2019'. The take-up was driven by logistics providers, FMCG distributors and manufacturing operators seeking modern, energy-efficient premises close to key transport routes.
When assessing industrial property opportunities, proximity to arterial roads, ports and freight hubs is vital. So too is flexibility of use – a building designed for one tenant type is more risky than a multipurpose facility that can serve several industries. Green features like solar PV and rainwater harvesting are increasingly not just value-adds, but requirements.
4. Zoning, bulk and development potential
Development-led investors should be looking for land with the right zoning already in place – or with realistic prospects of rezoning. Land banking in areas earmarked for future expansion can yield strong returns, but only if the right groundwork has been done.
Understanding bulk rights, building lines, parking ratios and environmental overlays is essential. So is engaging early with municipal planning departments to understand precinct plans, transportation frameworks and timelines for service rollouts.
The redevelopment of underutilised commercial buildings is another emerging trend, particularly in older business districts. However, retrofitting comes with its own risks – compliance with new energy and fire regulations, heritage approvals or the cost of upgrading old systems to modern standards. These projects can be highly lucrative, but they require detailed feasibility studies and the right professional team.
5. Follow the money: where are building plans being passed?
Municipal data on building-plan approvals can offer a leading insight into where private developers are placing bets. If you notice an uptick in industrial plans being passed in a particular node or mixed-use precincts gaining traction in a suburban area, it's a sign of confidence and forward-looking demand.
At the same time, it's worth noting where plan approvals are declining – especially in overtraded sectors. For instance, many municipalities are seeing a slowdown in office-building approvals, reflecting the oversupply that followed the 2020–2022 remote work trend. That said, the market is recalibrating, and demand is returning for smaller, flexible, high-spec office environments, often in mixed-use or lifestyle precincts.
6. Economic signals: interest rates and lending appetite
Commercial real estate is capital-intensive and the cost of debt plays a central role in determining feasibility. While the South African Reserve Bank initiated a rate-cutting cycle in late 2024, recent global economic uncertainties and inflationary pressures have led to a more cautious approach.
The prime lending rate is expected to remain relatively stable through 2025, with potential modest declines contingent on favourable economic developments.
Banks remain cautious in their commercial lending practices. Loan-to-value ratios are typically capped at 65%–70% for new developments, with lower ratios for speculative projects.
Having equity or access to patient capital is a competitive advantage in this environment. It also underscores the importance of robust due diligence, clear business cases and tenant pre-commitments when seeking finance.
7. Keep an eye on the cycle
Commercial property is cyclical, and timing matters. Different asset classes perform differently depending on where we are in the cycle. Right now:
- Offices are moving into recovery mode, particularly in decentralised nodes with high-spec buildings.
- Retail is holding steady in neighbourhood and convenience formats, but faces structural headwinds in large regional centres.
- Industrial continues to outperform, especially in logistics-driven corridors.
- Hospitality and student housing are attracting renewed attention as tourism rebounds and tertiary institutions return to in-person learning.
Understanding these dynamics can help investors ride the upswing and avoid being over-exposed in downturns.
8. Regulatory clarity and operating risks
Finally, make sure you understand the regulatory environment – from the basics of building compliance and zoning, to the tax implications of owning and operating commercial property. This includes being aware of legislation such as the Property Practitioners Act and municipal bylaws, which affect everything from agency mandates to electricity resale.
Operational risks, too, must be factored in. Load shedding, water insecurity and municipal inefficiencies remain real challenges in parts of the country. Where possible, invest in buildings or precincts with backup power, water storage, and proactive management. Tenants increasingly demand these features – and they impact rental growth and tenant retention over the long term.
The commercial property market rewards insight, not speculation. Success lies in doing your homework: understanding market cycles, selecting growth areas with strong fundamentals and partnering with experienced commercial brokers who can help you unlock long-term value.
If you're willing to take a measured approach – guided by real data, local knowledge and sector trends – there are excellent opportunities to be found in 2025 and beyond.
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