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The Citizen
30-07-2025
- Business
- The Citizen
Here is why Cape Town is leading in the commercial property market
Cape Town leads, while Johannesburg lags Cape Town appears to be the preferred destination for businesses looking to rent or buy commercial property, as brokers view the city as the strongest market. The quarterly FNB Property Broker Survey, released on Tuesday, shows that the City of Cape Town continues to be perceived as the strongest market, showing the most significant 'under-supply' across all three major commercial property sectors. FNB Property Broker Survey asks real estate agents, also known as brokers, about the current state of the commercial property market in South Africa. The brokers must operate in the City of Johannesburg and Ekurhuleni (collectively Greater Johannesburg), Tshwane, eThekwini, the City of Cape Town, and Nelson Mandela Bay. Cape Town leads, Joburg lags The survey is measured using three sectors: office, industrial and retail property markets. Cape Town leads in all the sectors, while Greater Johannesburg remains the weakest, with perceived oversupply in all three sectors. 'Cape Town stands out as the strongest metro across all three commercial property markets, while Greater Johannesburg is perceived as the weakest by a significant margin,' says John Loos, FNB's property strategist. Included in the survey are questions on the perceived balance (or imbalance) between demand and supply for properties being transacted, broken down by metro. In this context, 'market strength' refers to relatively high demand versus supply, and 'market weakness' to the opposite. ALSO READ: 8 tips for investing in South African commercial property Why Cape Town? Loos adds that Cape Town has experienced an influx of skilled professionals and affluent households. Additionally, there has been business migration and expansion in the city. He notes that there is a limited land supply in Cape Town, but also a stronger local governance and infrastructure. 'These factors appear to support long-term investor confidence, reflected in both the commercial and residential market data.' Retail property market 'Based on broker feedback on whether demand exceeds supply, supply exceeds demand, or the market is balanced, we compile a demand-supply perception index. This index ranges from +200 to -200, where: • +200 means 100% of brokers perceive that demand far exceeds supply, and • -200 means 100% perceive that supply far exceeds demand. • A zero score implies a balanced market,' adds Loos. Across all three sectors, the retail property market recorded the strongest sentiment with a score of +23, while the industrial property market recorded +22, and the office market remains under pressure, with a negative score of -30. 'In short, brokers perceive the Retail and Industrial Markets as moderately undersupplied, while the office market is oversupplied.' Oversupply He highlights that the national office market oversupply is largely driven by Gauteng metros. All metros recorded positive scores when it comes to the industrial property market, except Greater Johannesburg. 'This is surprising, given Johannesburg's relatively low industrial vacancies and the fact that industrial property has been the best-performing sector nationally. The weakness may reflect long-term investor concerns about the region,' adds Loos. NOW READ: Commercial property confidence increases, but still perceived as weak
IOL News
03-07-2025
- Business
- IOL News
Shifting trends: 19. 3 per cent of office properties now being converted to residential and mixed-use developments
The Virginia Airport site is now a R10 billion investment that will start this year to 2030 and create 10 000 jobs. The strategic plan is to redevelop the airport site for mixed-use purposes, including high-end residential and commercial use. Image: Graphic: Supplied A notable 19.3% of office property purchases are intended for conversion to residential or mixed-use developments, according to brokers' estimates. Residential conversions are playing a critical role, especially in Johannesburg, says John Loos, the senior property economist for Commercial Property Finance at FNB. In the first quarter of this year, the FNB Property Broker Survey included a new question on the main reasons for buying office property. The options provided were company purchase for own office use, investment to lease as office space, conversion to residential or mixed use and others. He said aggregated responses from the first and second quarters provided revealing insights. 'Nationally, 43% of buyers were purchasing for their own use, while 36.4% were investors. A noteworthy 19.3% were acquiring office properties with the intention of converting them to residential or mixed-use, an important mechanism for absorbing excess office space is unlikely to be needed in the future, Loos said. Regionally, he said Johannesburg shows the highest conversion intent, with 38.1% of office property purchases estimated to be for repurposing. Nelson Mandela Bay was at 17.1% and Tshwane (14.9%) followed, while Cape Town (4.6%) and eThekwini (1.3%) showed minimal conversion activity. These figures likely reflect healthier market fundamentals and lower vacancy rates in the coastal metros, Loos said. He said that, however, this also means that in cities like Cape Town, opportunities to address housing shortages by repurposing underused office space are limited-particularly in high-demand areas such as the City Bowl. Loos said many of the challenges facing the office property market in recent years have been well-documented. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ He said when Covid-19 lockdowns began in 2020, there was a surge in remote and hybrid working, sparking debate around the future need for office space. He added that some companies reduced their office footprints to accommodate greater levels of remote work. 'While much of the initial hype around working from home (WFH) was overblown, many employees eventually returned to the office-though not in the same numbers as before the pandemic. Long before Covid-19, however, advances in technology had already enabled more flexible work arrangements. "These trends are expected to continue gradually in the post-pandemic 'new normal',' Loos said. Additionally, the senior property economist said productivity improvements driven by technology have allowed office-dependent sectors to grow without proportionally increasing their workforce numbers, curbing long-term demand for office space. At the same time, he said digitisation has reduced the need for physical document storage, further lowering space requirements. The financial institution's commercial property finance unit said South Africa's sluggish economic growth since the early 2010s has also played a role, limiting formal employment growth and, by extension, the demand for office space. 'Unsurprisingly, these factors led to a sharp rise in the national office vacancy rate-from a post-GFC low of 9.2% in 2014 (MSCI data) to a peak of 18.2% in 2021/22, shortly after the hard lockdowns.' Since 2021/22, Loos said there have been encouraging signs of declining oversupply, particularly in the major coastal cities, with the national office vacancy rate declining to 15.8% in 2024-still high, but a notable improvement. 'Rode data paints a similar picture, with national average A+, A, and B-grade office vacancy rates dropping from nearly 18% in the first half of 2022 to 12.8% in Q1 2025. Although this remains above the long-term average of 9.5%, the trend is positive.' Loos said. He said that, however, Rode data also reveals a regional divergence with Cape Town and Durban's decentralised markets showing vacancy rates just above 8%, possibly supported by a growing demand for call centre space. In contrast, Gauteng is said to remain under pressure, with this year's first quarter vacancy rates of 14.1% in Johannesburg and 13.4% in Pretoria. With regards to investment sentiment, 57% of brokers in this year's second quarter FNB Property Broker Survey believe that office property supply still exceeds demand. However, this is down significantly from the record high of 98.4% in the second quarter of 2021. New was said to have significantly slowed down the key factor in reducing oversupply, being the dramatic decline in new office space development. In 2024, only 82,942 square metres of office space were completed, an 86% drop from 2019 levels and a 90% decrease from the 2013 peak. The affordability improvements were said to support recovery with real (inflation-adjusted) office rentals declining by 16.5% from the 2020 peak to 2024, while real capital values per square metre have dropped by 25.9% since the 2016 high (MSCI data adjusted for GDP inflation). For both tenants and investors, office space has become more affordable, another factor helping to reduce oversupply. In conclusion, Loos said the office property market is gradually 'right-sizing' amid structural shifts in demand. 'While reduced new developments and improved affordability have played important roles, residential and mixed-use conversions-particularly in Johannesburg-are emerging as a key solution to the sector's oversupply. "The future of the office market lies in its ability to adapt to long-term changes in work patterns, economic conditions, and urban development needs.'
IOL News
27-06-2025
- Business
- IOL News
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. Independent Media Property
