Navigating challenges: The resilience of South Africa’s real estate

South Africa's real estate sector continues to defy global and local market volatlity and retail property in particular reflects a "remarkable recovery," according to Standard Bank Real Estate Coverage senior vice president Simon Fiford.

“We've witnessed significant movements across global markets, shifting geopolitical dynamics, and ongoing volatility driven by persistent macroeconomic headwinds,” he said in a note on Monday.

Anchor Capital CE Peter Armitage and co-chief investment officer Nolan Wapenaar said recent weeks, notably the first few weeks of April, were dominated by the more aggressive than expected approach by US President Donald Trump on import tariffs and fractures in South Africa’s Government of National Unity following Treasury’s bungled attempt to raise VAT.

Currently, all global asset classes had slightly lower than expected returns on their outlooks, due to the impact of de-globalisation, reduced confidence, and market uncertainty, they said.

“The outlook remains uncertain, and we do not believe we are at the end of the Trump-induced turmoil,” said Armitage and Wapenaar in a statement about asset allocation in 2025.

Fiford said the South African real estate sector has not been insulated from these broader dynamics. The local sector comprises multiple asset classes: office, retail, residential, industrial, and alternative real estate assets—including data centres, cold storage facilities, and student accommodation, among others.

“Across these categories, performance has varied. Despite macroeconomic challenges, the sector has shown notable resilience,” said Fiford.

His view is supported by the Real Estate Investor (REI) online publication, which said SA REITs had stronger fundamentals and healthier balance sheets across the sector, this after rebounding 68% since the Covid-19 crash. REI said properties were trading at significant discounts to net asset value, offering long-term upside despite global market volatility.

Fiford said that beyond global pressures, the real estate market had to contend with persistently high interest rates, the lingering effects of the post-COVID-19 recovery, and muted domestic economic growth, all of which impact each asset class differently.

He said office rentals were "surprisingly resilient". Vacancy rates for grades A+, A, and B office space fell to 12.6% in the fourth quarter of 2024, from 14.4% in the same quarter a year before.

“The shift back to physical workplaces has gathered momentum, as hybrid fatigue sets in, and companies prioritise in-person collaboration. Globally, firms such as Amazon, IBM, JP Morgan Chase, Tesla, Zoom, and Google have implemented return-to-office mandates.”

“Locally, we've observed a similar trend: more businesses are encouraging employees to return to office environments, driven by benefits like faster onboarding of new hires, enhanced collaboration, more effective strategic planning, and execution,” said Fiford.

Meanwhile, he said the retail sector has experienced a remarkable recovery. Footfall and occupancy rates had surpassed pre-pandemic levels in several key African markets.

The asset class was also seeing low vacancy rates—5.5% for the 2024 financial year—as well as increased adoption of solar PV initiatives to manage operational costs. Standard Bank recently issued a renewable bond to provide access to affordable sustainable funding for such projects.

“We have seen the rise of urban consolidation, which has led to innovative precinct developments that blend residential, retail, and cultural spaces in one environment,” said Fiford.

He said a structural undersupply of affordable housing, however, remained a challenge in South Africa, and there was “massive potential for scalable investment and impact.”

The industrial property sector continued to be the standout performer in the property sector, with the asset class benefiting from booming e-commerce, the reshoring of supply chains, and demand for warehousing solutions. Vacancy rates had dropped by 2.1%, while rental growth had exceeded 5% year-on-year. There was also a surge in tenant-driven developments and sale-and-leaseback structures.

BUSINESS REPORT