South Africa
Prime offices in Cape Town have recorded an increase in occupancy of more than 10% in the last two years and currently stand at 85%, while the industrial sector remains a top performer in terms of yields against other non-residential asset classes, particularly in the warehousing and logistics segments.
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Heightened demand for serviced offices
In Johannesburg, the office leasing market remains under pressure, with monthly prime rents remaining stagnant at between c.US$ 10.82-12.44 psm over the last 3 quarters. As a result, landlords are actively competing to attract occupiers, often offering generous relocation incentives to new tenants and renewal incentives to existing tenants.
And just like in Kenya, occupiers have also shown increased interest in serviced offices, attracted by flexible leases and ‘plug-and-play’ environments.
Prime offices in Cape Town have recorded more than 10% increase in occupancy levels in the last two years. This can be attributed to the accelerated return-to-office trend by most organisation, which prefer an office set up with a backup electricity supply. Due to the continued load shedding in the country, occupiers require energy-efficient buildings with reliable power and water backup systems to ensure the continuity of their business operations.
Warehousing and logistics segments boosting the industrial growth
The prevailing energy crisis is negatively impacting the productivity of industrial occupiers, leading to escalated electricity expenses. Furthermore, landlords continue to grapple with inflationary pressures, which are driving up operational expenditures.
Despite this, we still expect net rental growth in medium to long term, driven by the growing demand for premium warehouses. Indeed, sustained demand means warehouse vacancy rates have fallen 5%, down 3% from last year. Similarly, monthly prime warehouse rents in Johannesburg have risen by 2% to US$ 5 psm over the last two years.
Online retail boom
Online shopping has taken centre stage in South Africa's retail landscape. According to the recent 'Online Retail Study in South Africa' by Worldwide Worx and Mastercard, the country's online retail market has been valued at ZAR 55bn (approximately US$ 3bn), underscoring the growing affinity among South Africans for the convenience of online shopping.
Notably, Checkers Sixty60, a leading grocery delivery app, that collaborates with Mars, has become a pivotal channel, outpacing traditional physical retail stores for sales of products like Whiskas cat food. The arrival of Amazon this year is likely to further amplify the momentum in South Africa's burgeoning e-commerce space.
The quest for affordable homes continues
As high-income households feel the pinch of the rising cost of living and the tightening of lending criteria against a backdrop of higher borrowing costs, some are gravitating towards homes that are perceived to be affordable. Furthermore, ongoing migration into urban areas is also contributing to rising demand for affordable housing.
The demand is further heightened by semigration – the practice of migrating within your own country. In 2023, First National Bank's estate agent survey showed that semigration was cited as the reason for selling a house for over 10% of home sales during Q2 2023. Semigrants typically move for a variety of reasons, including better municipal services, safety, better employment opportunities, and more appealing lifestyles. The Western Cape remains the country's semigration hotspot.