The South African property sector demonstrated resilience and growth amid ongoing economic pressures, according to the latest South African Property Owners Association (SAPOA) Property Trends and Operating Costs Report for June 2024.
The report compiled by MSCI South Africa highlighted a 10.1% annual total return for the sector, with a six-month performance of 5.3%. Despite positive capital growth seen across sectors, rising operational costs—particularly in electricity—pose ongoing challenges for property owners.
Eileen Andrew, Vice President of MSCI, presented the report’s findings during the webinar to a broad audience of property industry stakeholders. “The data reveals a complex but ultimately encouraging landscape. Despite cost pressures, South Africa’s property market continues to show resilience, particularly in sectors like industrial and residential, which are leading recovery efforts. Our findings emphasise the importance of sustainable practices to manage costs, especially as electricity remains a significant expense,” said Andrew.
Industrial properties emerged as top performers, boasting the highest returns across property types. As demand grew and rental rates strengthened, industrial spaces solidified their position as a cornerstone of growth within South Africa’s property landscape. The residential market, meanwhile, recorded robust returns as the segment benefitted from strong rental growth and declining vacancy rates. Notably, this improvement reflects an increasing demand for residential spaces, potentially bolstered by shifts in consumer needs and lifestyle changes post-pandemic. As a result, residential properties posted steady income returns, providing property owners with a stable source of revenue and highlighting the sector’s potential for sustained growth.
“The performance of the industrial and residential property segments is a promising indicator for South Africa’s property landscape,”she said. “Yet, as the report shows, the sector must also adapt to rising operational costs, particularly in energy, to sustain its momentum. As an industry, we must continue to collaborate to find sustainable solutions and drive efficiency.”
Operating expenses for the property sector grew by 4.6% over the year leading to June 2024, driven primarily by rising electricity rates and increased tenant installation costs. The sector’s cost-to-income ratio, while steady compared to the previous year, remains higher than pre-COVID levels, underscoring the ongoing financial pressures faced by property owners. Notably, industrial properties, which saw the fastest growth in costs, highlighted the importance of energy efficiency improvements across property segments. For office and retail properties, administered costs showed slight decreases, though industrial properties recorded a rise in these costs, with KwaZulu-Natal experiencing the highest increase.
To mitigate the impact of these rising expenses, SAPOA has encouraged property owners to consider energy-efficient solutions and sustainable building practices that could reduce long-term operational costs. “In an era of high energy costs, implementing energy-efficient solutions is crucial for maintaining profitability and supporting sector-wide stability,” said Andrew.
Positive trends were also seen in investor activity, with Real Estate Investment Trusts (REITs) recording net acquisitions for the first time in six years—a sign of renewed confidence in South Africa’s property market. This trend, bolstered by improving GDP and a global shift towards real estate as a stable asset class, bodes well for continued investment. Growth in base rentals, particularly within the retail, industrial, and residential segments, further supports the sector’s post-pandemic recovery. For residential properties, increased rental demand alongside a more favorable supply-demand balance has led to improved occupancy rates, underscoring its potential as a strong, stable investment.
SAPOA, as the representative body for South African property owners, remains committed to championing industry advancements, addressing fiscal and environmental challenges, and supporting sustainable sector growth.
The report also emphasises the importance of balancing rising costs with strategic growth initiatives. For example, while operating costs are largely in line with inflation, electricity costs continue to increase disproportionately, placing additional strain on property owners. Total costs of occupation for tenants grew by 3.5% in the past year, below inflation, signaling some relief for tenants but also suggesting a need for cautious optimism as owners absorb a larger share of the cost burden. The report underscores the resilience required within the sector as property owners look to manage costs while maintaining growth trajectories.
Looking ahead, SAPOA aims to work closely with industry stakeholders, exploring new avenues to support energy efficiency and promoting best practices to manage the sector’s operational challenges. With a collective focus on long-term growth, SAPOA remains committed to fostering a sustainable and resilient property landscape for South Africa.