News Research

The State of SA’s Property Market Q2 2023

SA’s industrial property market remains the best placed of the major commercial property types, but it is also showing signs of slowing down, such as weaker rental and stand value growth, according to Rode’s State of the Property Market for Q2 2023.

This was to be expected, given the state of the economy and the pressure on the manufacturing and retail sectors with the electricity crisis a large negative factor.

The retail property market made a strong comeback in 2022 but it has also been under pressure of late as demonstrated by the weaker retail sales performance and higher mall vacancy rates which is reflected in the higher capitalization rates of regional shopping centres.

The office property market remains the worst placed of the three, but it has shown some improvement with vacancies declining.

House prices have come under renewed pressure while apartment rentals are showing the opposite trend.


The results of Rode’s Q2 2023 survey show that the industrial property market is still best placed of the three major commercial property types because of its relatively higher rental growth and low vacancy rates.

However, the market is starting to slow down as shown by weaker rental and stand value growth and lower building activity. Nominal gross industrial market rentals for space of 500m2 grew by 4.1% in Q2 2023 compared to Q2 2022 – this is slower than the 5.1% year-on-year growth recorded in Q1 2023 and was the second consecutive quarter of weaker growth.

In real terms, rentals are still declining after deducting building-cost inflation. Regionally, nominal rental growth was the strongest in Cape Town and the East Rand at 7% and 6% respectively. Both these conurbations saw an improvement in vacancy rates in the first half of 2023 to 2 points on Rode’s scale (from 1 to 9) or 3.4%. In fact, most conurbations in SA have seen lower vacancy rates compared to the first half of 2022, averaging less than 5%. The exceptions were Bloemfontein and Gqeberha where vacancy rates average 6% to 7%. Nominal rental growth in the Central Witwatersrand and Durban was slower at 3.2% and 2.2% respectively.

It comes as a surprise that industrial vacancy rates remain low and that they even declined further during Q2 2023 to an average of 3.9% on a national level. Perhaps landlords have kept vacancy rates low at the expense of rentals as reversion rates on new leases have been negative for most REITs.

Contractual rentals have escalated by more than market rentals. It could also be that landlords have decided to not be ‘too hard’ on tenants due to the extra money the latter need to fork out for power, such as diesel for generators. Growthpoint, the largest SA REIT, said in June that “load shedding severely affects manufacturing and production tenants, raising their costs, straining occupancy affordability and contributing to more tenant failures”. Rode believes that rising vacancy rates could start to show in the coming quarters.


The office market remains in the worst position of the three major commercial property types due to its significant oversupply. Encouragingly, Rode’s Q2 2023 data continues to point to an improvement in vacancy rates while nominal market rental growth remains in positive territory.

REITs are still generally reporting large negative office rental reversions as contractual rentals have escalated by much more than the growth in market rentals and the outlook for the office market is clouded by the poor economy and the remote working trend. However, the momentum seems to be shifting towards returning to the office in larger numbers. That said, hybrid working policies for example, three days in an office, remain the popular choice which means less demand compared to pre-Covid-19 levels.

Nationally, weighted market gross rentals for decentralized grade-A space increased by 3.5% in nominal terms in Q2 2023 compared to Q2 2022. This comes after growth of 3.2% year-on-year in Q1 2023, which shows that nominal rentals have bottomed out after falling sharply during the pandemic.

But to give perspective, the second quarter nominal rental rate on a national level was still 3% below 2019 levels. In real terms, second-quarter decentralized rentals fell further into negative territory after deducting the BER’s roughly 10% estimate of building-cost inflation. Regionally, Cape Town has been the clear top performer over the past few quarters, after a serious rental dip of 10% in 2021. Nominal grade-A gross rentals increased by 13% in the decentralized nodes of the Mother City compared to a year earlier. In Pretoria, these grew by 3.6% and by 1.6% in Johannesburg.

In real terms, only Cape Town managed to record above-inflation rental growth compared to a year ago. Durban decentralized rentals fell by 1.1% − the second consecutive quarterly year-on-year decline, but some nodes like La Lucia Ridge and Umhlanga still performed well. The results of Rode’s office vacancy survey show that vacancy rates in SA improved further during Q2 2023 with the average vacancy rate of grades A+, A and B space combined 14.5% in Q2 2023, lower than the 14.9% in Q1 2023, largely thanks to less vacant space in Cape Town and to a lesser extent in Johannesburg.


The housing market continues to slow down due to lower effective demand for property due to the weakening economy, the higher cost of living and rising interest rates.

Nominal prices grew by 1.9% in May 2023 compared to May 2022, the slowest growth rate since July 2020, based on FNB data. Prices grew by 2.3% in the first five months of 2023 compared to the same period in 2022. This indicates a slowdown from mini-boom levels during the pandemic, when the prime interest rate fell as low as 7%.

In real terms, house prices in the first five months of 2023 fell sharply after deducting the consumer inflation (CPI) rate of 6.8%. Interest rate hikes started to affect prices and sales activity more materially in Q2 2023, especially in Gauteng, and the impact thereof is not over yet. More sales have also occurred due to the owners experiencing rising financial pressure.

Turning to flats, vacancy rates on a national level averaged 6.9% in Q2 2023, unchanged from Q1 2023, according to Rode’s residential survey data. This is better than the 8.3% average of 2022. However, vacancy rates are still slightly above the 5.3% average recorded in the three years from 2017 to 2019 that preceded the pandemic.

The improvement in national vacancy rates since 2021 has supported flats’ rental growth. Official data from Stats SA shows that nominal flat rentals in South Africa in Q1 2023 increased by 2% compared to a year earlier, in line with the 1.9% growth in the fourth quarter. PayProp data shows that nominal rental growth lifted to an even higher 4.2% in Q1 2023 − the fastest growth since Q4 2017. However, reduced affordability is negatively affecting the sales of flats, with several brokers reporting a quiet market. All in all, house prices and rentals are still declining in real terms in most parts of the country.

In case you missed it: The State of SA’s Property Market Q1 2023