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South African commercial property brokers report decreased business confidence in second quarter
The upward trend in property broker confidence observed in previous quarters was reversed in the second quarter of this year.
Image: Magda Ehlers/Pexels
The business confidence among commercial property brokers declined in the second quarter of this year, thereby reversing the upward trend observed in previous quarters.
This is according to the FNB Commercial Property Broker Survey, which assesses a sample of commercial property brokers operating in and around South Africa's six major metros: the City of Johannesburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, the City of Cape Town, and Nelson Mandela Bay.
Before assessing market activity levels, brokers are asked whether they find current business conditions 'satisfactory' via a simple yes/no response.
In the second quarter of this year, the percentage of brokers who perceived conditions as satisfactory dropped from 55% in the previous quarter to 40%.
This marks the end of three consecutive quarters of improvement, says John Loos, the senior property economist for Commercial Property Finance at FNB.
The survey showed that all three major property classes recorded a decline in activity ratings this quarter, with the industrial and warehouse property one remaining the strongest-performing market, although its activity rating declined slightly from 5.69 in Q1 to 5.59 in Q2.
Retail property activity fell from 4.79 in Q1 to 4.47 in Q2, while office property activity declined from 4.95 in Q1 to 4.67 in Q2.
These figures were said to represent a reversal from the previous quarter, where all three sectors saw improved activity ratings.
As a result, the Q2 2025 FNB Property Broker Survey suggests that both business confidence and perceived market activity have weakened, indicating a broader sentiment of caution in the commercial property space.
The financial institution said the survey was conducted in May, shortly after the South African Reserve Bank (SARB) chose to hold interest rates steady in March, following three consecutive 25 basis point cuts at earlier Monetary Policy Committee (MPC) meetings.
Although the SARB resumed its rate-cutting cycle in late May, it said the temporary pause may have dampened sentiment among brokers and their clients.
Loos said additional factors influencing negative sentiment include the instability within the Government of National Unity (GNU) regarding national budget negotiations, raising concerns about the coalition's longevity, tense diplomatic relations between South Africa and the United States, with US President Donald Trump threatening trade tariffs and accusing South Africa of human rights violations and hostility toward the US and its allies.
This led to the closure of USAID in South Africa and fears of increased tariffs on exports-potentially impacting the economy.
He said that slower economic growth, with the first quarter GDP expanding only 0.1% quarter-on-quarter, down from 0.4% in the last quarter of last year, suggests that early 2025 may be constrained in terms of business growth and investment.
Despite the current decline, FNB said it expected a mild recovery in property sales activity in the second half of this year.
It said the full-year activity is forecast to outperform 2024 levels, driven by an anticipated 25 basis point interest rate cut in the second half of this year, supported by a low May inflation rate of 2.8% y/y-below SARB's lower target threshold of 3%.
The property economist said positive signs from leading economic indicators included SARB's Business Cycle Leading Indicator (March), which rose 4.1% year-on-year and 1.1% month-on-month, new passenger vehicle sales, which surged 30.3% year-on-year in May and residential mortgage demand, which had reached 16.2% y/y growth by last quarter of last year (though data for early 2025 is still pending).
Based on these indicators and a looser interest rate environment, FNB forecasts GDP growth of 1.1% for this year, compared to 0.5% last year.
However, it said not all signs are optimistic as the Manufacturing PMI's new sales orders index recorded a low 38.3 in May (on a 0-100 scale), indicating continued pressure in this critical sector.
Despite weaker sales activity, brokers continued to report declining vacancy rates across all three property classes. Lower vacancy rates are typically associated with stronger rental growth and improved net operating income, which may attract more investors seeking higher returns.
While the second quarter of this year showed a dip in confidence and activity across the board, FNB said it remains cautiously optimistic. 'Given the expected macroeconomic tailwinds and improving indicators, a modest rebound in commercial property sales activity is anticipated in the latter half of 2025.'
While the South African real estate sector has not been insulated from the various macroeconomic challenges, the sector has shown notable resilience.
This was as this year got off to a volatile start with significant movements across global markets, shifting geopolitical dynamics, and ongoing volatility driven by persistent macroeconomic headwinds.
Despite global pressures, South Africa's real estate market faced significant domestic headwinds. These included stubbornly high interest rates, the continuing impact of the post-Covid-19 recovery, and overall weak economic growth, said Simon Fiford, senior vice president for Real Estate Coverage at Standard Bank recently.
These factors have impacted each asset class differently. Across these categories, performance has varied.
'According to Standard Bank's internal estimates, the South African commercial real estate sector is currently valued at approximately R1.9 trillion. This represents a significant increase from the R1.3 trillion recorded in 2015, highlighting the sector's growth over the past decade.
"If we add to this the estimated value of the residential property market (R6.9 trillion), the market size exceeds R8.8 trillion (as of the end of 2024),' Fiford said.
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