During the first ten months of 2024, the total return on listed property was 32%, comfortably outperforming the general equity market, cash, and bonds.
However, there is a disconnect between a bourse and a market for non-listed property, according to Rode Media’s The State of Property Market Report for Q3 2024.
For instance, a change in interest rates have a much more significant impact on the values of listed than non-listed property with listed property values more volatile.
SA’s office market
The modest recovery of the local office market continued in Q3 2024 with the decentralised vacancy rate of grades A+, A, and B space combined, decreasing to 13.3% from 14.4% in Q3 2024. However, vacancies are still above pre-Covid-19 levels with Cape Town and Durban outperforming Gauteng cities.
During Q3 2024, gross market rentals for decentralised grade A-space increased nationally by 2.7% in nominal terms when compared to Q3 2023 – better than the 2% growth recorded in Q2 2024. Altogether, office rentals have improved from the pandemic decline.
It is not surprising that listed property companies are still reporting negative office rental reversion rates as contractual rentals have escalated over the past few years – more so than the growth rate of market rentals, implying that office rentals are still declining in real terms after deducting building-cost inflation (BER BCI) of around 10%.
There is an enormous upside rental potential in the medium term from the current ‘shattered’ levels with recovering business confidence and declining interest rates boding well for the economic outlook and in turn, office demand.
Construction of new offices remain limited, which if sustained, will be positive for the sector over the long run.
The industrial market
The industrial property sector continues to perform well with nominal rental growth accelerating further in Q3 2024. This comes amid continued low vacancy rates with Rode’s findings highlighting the sector’s average vacancy rate was 3.6% in Q3 2024, lower than the long-term average of 4.2%.
Industrial rentals increased significantly, with space of 500m2 experiencing a 6.9% increase in Q3 2024 when compared to Q3 2023 – up from the 6.1% growth recorded in Q2 2024. Industrial building space of 1 000m2 saw a rental increase of 7.4%.
However, in real terms, rentals are still declining due to elevated building-construction inflation.
Regionally, nominal rental growth was strongest in Gauteng’s conurbations of central Witwatersrand and the East Rand, and in Cape Town.
The industrial sector has benefited from a more robust retail market (online sales) and less speculative development in the past than office buildings and shopping centres. However, the manufacturing sector remains under pressure.
SA’s residential market
House prices are still growing at less than inflation amid the weak economy and elevated interest rates. According to FNB’s index, between January and August 2024, nominal house prices rose by only 0.8% when compared with the same period a year ago, meaning that there is a good chance that growth for 2024 will be slowest in 15 years.
Further interest rate cuts are crucial, especially with more homeowners experiencing financial pressure.
Regionally, the Western Cape has shown relatively strong sales activity and shorter times on the market when compared to other provinces like Gauteng where house prices are stagnant.
There is cautious optimism for 2025 due to an expected pickup in economic growth and further interest rate cuts. However, structural issues in SA may hinder significant economic and housing market improvements.
Apartment vacancy rates on a national level averaged 6.3% in Q3 2024, down from 6.7% in Q2 2024, according to Rode’s residential survey. The decline in vacancy rates spurred rental growth with nominal apartment rentals rising by 4.1% year-on-year in September, according to StatsSA.
Apartment rental growth outpaced the inflation rate (CPI), marking the first real growth since 2020.
The Western Cape stands out with a low apartment vacancy race of 2% to 3% and robust rental growth of 5.4% year-on-year. In Gauteng, rental growth showed some improvement but remains slow with vacancy rates having declined over the past year, reaching 7% in Q3 2024.
Infrastructure remains a severe issue in Gauteng, requiring drastic improvement.
