What property owners can expect in South Africa in 2025

Despite projections of modest growth, the South African commercial property market enters 2025 facing a confluence of economic uncertainties.

John Loos, Senior Economist at FNB Commercial Property Finance, said to expect a “moderate and mild” outlook for the sector in the group’s Property Outlook Report 2025.

This cautious optimism stems from a complex interplay of local and global economic forces, creating a sense of fragility in the market’s anticipated recovery.

2024 saw a potential turning point for the South African economy, marked by declining global interest rates and a perceived shift towards investor-friendly policies locally.

The formation of a new Government of National Unity (GNU) in June further fueled optimism.

“Improved longer-term economic growth is crucial for the property market after the past decade-and-a-half of the broad economic stagnation had brought some significant correction in property markets,” said Loos.

A key concern going forward is the underperformance of the property market relative to broader economic inflation.

“Low net operating income and capital value growth has not kept pace with general inflation in the economy since around 2015/16,” said Loos.

This trend is evident in the significant decline in All Property’s net operating income and average capital value/square meter since their peaks in 2016.

While modest interest rate cuts in 2024 provided some relief, the impact on the highly credit-dependent property market remains uncertain.

FNB forecasts further rate cuts in the first half of 2025, but the extent to which this will stimulate growth, particularly in the interest-sensitive residential sector, is yet to be seen.

Improvements in key service delivery areas, such as electricity supply and logistics, offered a glimmer of hope in late 2024.

The elimination of load shedding and progress in transportation infrastructure are expected to impact economic growth positively.

However, recent data releases have cast a shadow over this optimism.

“Some macro-fundamentals underpinning the property market appear ‘fragile’ of late,” said Loos.

The fragility stems from several factors, including:

• Slowing GDP growth: South Africa’s third-quarter GDP growth slowed further, raising concerns about the strength of the economic recovery.
• Weakening high-frequency indicators: Key indicators like new passenger vehicle sales and manufacturing new sales orders have shown signs of decline, suggesting a less robust start to 2025.
• Global market uncertainty: Financial markets have grown increasingly cautious about the global economic and inflation outlook, particularly in light of the impending Trump presidency and its potential impact on trade and inflation.
• Rising bond yields: South African Government’s long bond yields, a key influence on property capitalisation rates, have experienced a sudden uptick.
• Rand depreciation: The South African Rand has weakened significantly against the US dollar, adding to the sense of uncertainty.

Despite these challenges, FNB forecasts a mild strengthening in commercial property net operating income and capital value growth in 2025.

However, Loos said these gains will unlikely outpace inflation, resulting in real declines.

Loos emphasises that “moderate and mild, at best,” will likely characterise the near-term outlook for the South African property market.

He said that the ability of the property market to weather these headwinds and achieve even modest growth will depend on several factors, including:

• The pace and extent of interest rate cuts;
• The impact of the Trump presidency on global trade and inflation;
• The South African government’s ability to address structural economic challenges and foster investor confidence.

As the year unfolds, Loos said that it will be crucial to monitor these factors closely to gauge the true trajectory of the South African commercial property market.

Read: Calls to sin tax South Africa’s R1.1 trillion addiction