Rode report on the South African property market

According to Rode’s report on the South African property market for the second quarter of 2022, South African property sectors are negatively affected by heightened concerns about local and global economic growth amid still inflation and interest rates. higher than expected in the Rode report for the first quarter.

“On July 6, the head of the International Monetary Fund said the outlook for the global economy had “darkened considerably” since April 2022, and that she could not rule out a possible global recession in 2023 given the risks high,” the Rode Report editor said. , Kobus Lamprecht,


The report showed that the office market continues to be in the worst position of the three major non-residential property types due to its large oversupply characterized by high vacancy rates and lower rents.

“However, the latest Rode survey shows that vacancy rates have improved slightly in the second quarter of 2022, with the decline in nominal rents generally less than before. In other words, the fundamentals are poor but improving to some extent. At this stage, it is too early to tell whether this positive development will continue given the expected weak economic growth and the trend towards working from home,” said Lamprecht.

“Nationally, gross market rents for decentralized Class A spaces were down 1% year-over-year in nominal terms. Encouragingly, the fall in rents has gradually eased since mid-2021, when rents fell by around 6% compared to the previous year. That may mean the worst is over, as rents stabilize at lower levels as more workers return to offices.

“It is important to keep in mind that the above are nominal rents, so there are no rent discounts, tenant set-ups, allowances or months rent-free assumed. In terms real rents fell by more than 10% after deducting construction cost inflation (BER BCI) which accelerated to around 13% during the second quarter. steel and copper price figures.

The report shows that regionally, Cape Town was the best performer, with nominal rents (+1.2%) exceeding those of a year ago. However, rents in all other major cities remained unchanged or decreased compared to the same period in 2021, indicating that the office market is still largely suffering.

“No other major city has managed to record rent growth above inflation. With building costs soaring, real rents have plunged into double digits. »


The report shows that the industrial real estate market continued to shine during the second quarter of 2022, with nominal rental growth for a 500 m2 space picking up to 5.4% year-on-year due to the low rate. of vacation.

Lamprecht said the current growth of 5.4% can be compared to growth of 0.5% in 2020 and 2.2% in 2021.

“However, the story is not so bright in real terms given soaring construction cost inflation. In any event, this sector is comfortably the best placed of the large service sectors where vacancy is well above and above its long-term average, especially office assets.

The report notes that a key reason for the outperformance of the industrials sector is the largely non-speculative nature of developments. Another performance driver was the superior performance of logistics due to the boom in online sales, which accelerated during the pandemic. But the fundamentals of this sector could be close to a peak, given the weakening economic context, which should limit the strong growth in demand for logistics and warehousing via weaker online sales.

In Cape Town, nominal rents for 500m2 prime space rose 7.2% year-on-year during the second quarter of 2022, remaining above pre-pandemic levels as demand for space outpaced supply. This is the strongest growth in rents recorded in the major industrial agglomerations.

The vacancy rate in Cape Town has continued to fall, implying a vacancy percentage below 5% – the lowest rate since the third quarter of 2020. Nominal rents in the Witwatersrand and Durban center also continue to fall. perform well, with growth reaching 5.8% and 6.6%, respectively.

Fundamentals in Durban are improving with the July 2021 looting and 2022 floods creating a shortage of space in some areas resulting in a vacancy rate of just under 4% which is better than average national. Rent growth in the East Rand was more moderate at 2.4%.


The housing market got off to a steady start in 2022, with nominal prices rising around 4% year-on-year in the first five months. That was slightly slower than the 4.2% growth for all of 2021, based on FNB data. However, house prices have fallen by around 2% in real terms in 2022 due to the sharp rise in the average consumer inflation rate to 5.9%.

According to the latest monthly data, nominal house prices rose 3.7% year-on-year in May, compared to 4% in April. This is well below the inflation rate of 6.5% for the same month.

“At this point, the impact of interest rate increases has not significantly slowed prices and volumes, but it will increasingly play a role in reducing effective demand as it increases towards its pre-pandemic level of 10% sooner rather than later,” Lamprecht explained.

“The Rode report indicates that house prices are expected to rise more slowly over the next year due to the weak economy, characterized by high unemployment. And as interest rates rise further, this will put additional pressure on consumers who are also facing inflation. Real estate price growth is still a few years away.

According to data from the Rode Residential Survey, fixed vacancy rates averaged 8.8% in the second quarter of 2022, compared to 9.9% in the first quarter.

“The improvement in vacancy rates resulted in slightly better nominal rents. However, these continue to fall in real terms, which means landlords are generally feeling the heat as total costs, including things like rates, taxes and maintenance, are rising faster than their rental income. .

It is much more expensive to maintain a home today compared to last year due to the rising prices of metals like steel. Rising interest rates are also increasing bond payments, and Lamprecht said there is little prospect of stable rent growth in the near future as it will be difficult for landlords to pass on steep cost increases. on tenants in the current difficult and deteriorating economic environment.

“A realistic scenario is that nominal rents will likely continue to rise slowly over the next year, but at a rate below the rate of consumer inflation,” he says.

Listed property

The Rode report shows that listed property prices lost further ground in the second quarter, with the SAPY index down 15.6% at the end of June compared to the end of December 2021.

This follows an excellent year 2021 where listed property prices rebounded by around 26%. The main reason for the pullback was fears of weaker global and South African economic growth, with the World Bank and IMF both downgrading their forecasts of the global economy for 2022 during the quarter.

Some of the main reasons are accelerating inflation and rising interest rates, both of which have been amplified by the Russian-Ukrainian war, which began in February and is still ongoing.

“This, combined with the local electricity supply crisis, has had a negative impact on consumer and business confidence. In such an uncertain environment, households will curb their spending, which will be negative for the economy and real estate fundamentals,” concluded Lamprecht.

• Sources: Private property and Pexels.

Penny D. Jackson