The South African commercial real estate market has surged to nearly R2tn


Despite the Covid-19 pandemic, inflation-fighting interest rates and slow economic growth, South Africa boasts the largest commercial real estate (CRE) industry in Africa. If recent reforms persist, interest rates continue to lower and key metros stabilise, a long-awaited commercial property boom could follow.

Source: Pexels.

According to Gmaven, a provider of real estate software and data services, the value of SA’s CRE market reached R1.92tn as of 30 June 2023, reflecting a significant 48% increase from the R1.3tn recorded in 2015, when official data was first released by the Property Sector Charter Council.

Source: Will Harris, chief executive officer of Gmaven.

Source: Will Harris, chief executive officer of Gmaven.

At an exchange rate of R18 to the dollar, this translates to nearly $110bn. With an estimated population of 62 million, the per capita value stands at $1,800. This is far lower than the UK, with a similar-sized population of 67 million. The UK’s per capita value of CRE is $26,600 – from a CRE market valued at $1.78tn.

“This new data underscores the resilience of South Africa’s commercial real estate sector (particularly the industrial and retail categories) and highlights opportunities for investment, future growth and strategic decision-making,” said Will Harris, chief executive officer of Gmaven.

Gmaven’s data reveals that listed property owners hold R400bn of the R1.92tn CRE value. According to latest reported numbers, South Africa’s largest listed property fund, Growthpoint Properties, reported assets valued at R70.5bn, followed closely by Redefine Properties at R64.7bn.

Excluding the listed sector, the bulk of the market value is held by owner-occupiers, private owners, and pension and life funds. High-density metros like Gauteng and the Western Cape account for the largest share of the market, while provinces such as Mpumalanga and Limpopo, with lower per capita values due to less formal urbanisation, have experienced recent growth in retail and present future opportunities.

Harris said the R1.92tn market value is derived from the annual financial statements of 213 South African municipalities. And this value is likely understated. It excludes state and municipal-owned commercial properties, as well as hospitals, hotels, schools, and multi-dwelling residential properties. Further, municipal commercial property values often fall below market value.

“Municipalities rely heavily on property rates and taxes for revenue, making them highly motivated to ensure property values are accurate. Simultaneously, property owners are incentivised to keep those values in check, as inflated assessments lead to higher tax bills.

This dynamic fosters a natural accuracy in the data – data that reflects the entire commercial property landscape of the country.”

Municipalities and the competition for “customers”

Harris said the value of CRE properties according to municipalities may be pushed up as they seek to extract more from property owners, placing pressure on property valuers to value higher. However, an increase in property value often represents only a paper gain, which translates into higher rates and taxes for property owners.

To avoid discouraging investment, any rise in rates and taxes must be accompanied by improved service delivery.

As has been demonstrated by the Western Cape’s growth and the relative value erosion in other metropoles, property values follow the laws of demand and supply. Improved local government service delivery attracts both resident and business rental payers. As capital flows into these areas, property investors follow suit, driving up property values.

However, the inter-country migration mentioned above is largely a zero-sum value game. With a fixed number of businesses and GDP, value simply shifts between regions rather than driving an overall increase in the country’s total property value.

How to increase property value?

The value of commercial properties can fluctuate significantly, even without new construction, driven by property-specific factors and broader economic and market conditions.

Macro factors that will drive increases in the total value of SA commercial property are lowered interest rates and the economic growth potential of the Government of National Unity (GNU) coming to fruition. The GNU promises to deliver improvements in local government services and infrastructure, policing and security, foreign policy, the legal system, clarity on property ownership rights, and overall investor sentiment regarding South Africa.

Micro, property-specific factors dictating commercial property values are driven by their income potential. Properties that generate higher rental income or maintain lower vacancy rates are valued higher. Innovative revenue streams—such as landlords installing solar panels and selling generated electricity—can further enhance income and, consequently, property value.

Operational costs, including rates, security, and property management, also play a vital role in determining overall value. When these costs decrease, property profitability rises, leading to an increase in property value.

The importance of understanding commercial real estate value

Grasping the value of South Africa’s commercial real estate market is essential for a variety of economic decisions, from infrastructure spend, to rental projections, taxation, and energy consumption.

Harris said understanding the true value of South Africa’s commercial real estate market is essential for businesses, policymakers, and investors. This value transcends mere statistics.

“By gaining a comprehensive understanding of the R1.92tn CRE market, businesses can make more informed decisions, municipalities can optimise revenue management, and major economic actors can strategise for sustainable growth,” said Harris.

To effectively, analyse CRE market value, it is essential to consider properties by grade (Premium, A, B, or C-grade), category (office, industrial, retail and other), and size or gross lettable area (GLA).

Harris said while obtaining specific data on various commercial property categories and grades can be challenging, these metrics represent the next frontier of insight for South Africa’s commercial property market.

“At Gmaven, we are making strides toward unlocking this data, which will open up a wealth of new opportunities within the commercial property sector in South Africa,” he added.



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