This text was Extracted from by Knight Frank’s “Africa Report 2015: Real Estate Markets in a Continent of Growth and Opportunity”.
Office vacancy rates drifted upwards in many key South African markets during 2014, as a result of continuing development activity and moderate demand for space. Occupier demand has increasingly focused on good quality space in prime locations, while decentralised secondary office nodes have struggled to attract tenants. In Johannesburg, Sandton’s position as the dominant office node has been reinforced by recent development activity, and major projects currently under construction in this area include new headquarter buildings for Sasol (67,000 sq m) and Discovery (87,000 sq m).
In Cape Town, the fast-growing Century City area is increasingly the location of choice for office occupiers, and vacancy rates have remained low in this district despite continuing development activity. Retail market South Africa is by far the most mature retail market in the continent, and the sector continues to see significant development activity. There are several major shopping centres in the pipeline, the largest of which is the Mall of Africa (120,000 sq m), being built as part of the Waterfall City development, situated between Johannesburg and Pretoria. The retail market is led by local brands such as Shoprite, Pick n Pay and Woolworths, but there is also a growing presence of overseas retailers. In recent years, fashion retailers including Zara, Forever 21 and Topshop have all entered the South African market, while H&M will arrive in 2015, opening a flagship store at the Victoria & Alfred Waterfront in Cape Town.
Industrial market sentiment was negatively impacted by the weakness of the manufacturing sector in 2014. Despite this, industrial real estate has been performing well as an investment asset class; according to the IPD South Africa Biannual Property Indicator, industrial property recorded a total return of 9.9% for the first six months of 2014, outperforming all other sectors. Industrial vacancy rates remain relatively low in most key markets, which has pushed demand towards better priced older stock.
Despite the uncertain economic backdrop, the residential market performed relatively well in 2014. The Knight Frank Global House Price Index recorded nominal price growth of 8.3% in South Africa during 2014, which was around 3% in real terms, adjusting for inflation. Improved access to financing and relatively low interest rates have supported increased demand for residential property over the last two years, but interest rate rises are generally expected in 2015/16. The prime residential market has seen increased interest from foreign buyers, partly because the depreciation of the Rand has made prices more attractive to an international audience. Overseas buyers’ interest is primarily focused on Cape Town and the Western Cape, followed by Johannesburg.
Source: Knight Frank