Industrial and Retail Property Surge Ahead While Office Space Struggles to Recover
The South African commercial property landscape is experiencing a shift, with industrial and retail sectors showing signs of strength, while office space continues to grapple with structural challenges. These trends, unpacked in FNB’s Property Broker Survey for Q4 2024, reveal a property market at a crossroads, where demand patterns reflect broader economic and societal shifts.
Industrial Property: The Unrivalled Performer
For years, industrial property has been the outperformer in commercial real estate. The reason? A structural evolution driven by warehousing, logistics, and the rise of e-commerce. The way we consume and distribute goods has fundamentally changed, and the demand for well-located, efficient logistics hubs has soared.
Industrial space has been in high demand, consistently exceeding supply. This is not just a short-term cycle but a deep-rooted transformation in how businesses operate. Traditional manufacturing has played a smaller role in driving demand, while the need for smart distribution centres has intensified. South Africa is mirroring global trends where industrial real estate is a key beneficiary of a shift towards online shopping, last-mile delivery, and the growing importance of supply chain resilience.
Retail Property: A Gradual Comeback
Retail property, which faced significant headwinds in recent years, is finally seeing investor demand outpacing supply. The market had been oversupplied for some time, particularly in suburban nodes where new retail developments continued to emerge even as consumer spending remained under pressure. However, a recent uptick suggests a shift in investor sentiment.
What’s driving this resurgence? A combination of factors: a stabilisation in consumer spending, strategic repositioning by retail landlords, and a flight to quality. Investors are being selective, focusing on well-positioned assets that cater to changing consumer behaviours, such as convenience-focused shopping centres and mixed-use developments that integrate retail with lifestyle and entertainment elements.
Office Space: A Market in Flux
The office sector remains the laggard in commercial real estate, with high vacancy rates and an ongoing structural oversupply. The work-from-home and hybrid models triggered by the pandemic have become entrenched, fundamentally altering the demand profile for office space. While some companies have called employees back to the office, this hasn’t necessarily translated into a need for more space.
Corporates have become more efficient in their space utilisation, adopting flexible working arrangements such as hot-desking and shared workspaces. Even where businesses retain their office footprints, many of these spaces remain underutilised.
A crucial trend to watch is the potential repurposing of older office stock. In some cases, outdated office buildings are being converted into residential units or mixed-use developments, creating opportunities for investors who can unlock value in a struggling segment. As economic conditions improve and interest rates ease, we may see a moderate recovery in office space demand, but structural challenges will remain.
Looking Ahead: The Economic Tailwinds
A strengthening economy in 2025, coupled with anticipated interest rate cuts, could provide some tailwinds for commercial property. Lower financing costs and improving business confidence should support transaction volumes across the board. While industrial property may have already captured much of its structural upside, retail and office sectors stand to benefit from a more favourable economic environment.
For investors, the key takeaway is clear: commercial real estate is not a one-size-fits-all market. The sectors are moving at different speeds, and opportunities lie in understanding where the real demand shifts are occurring.
Industrial remains a stronghold, retail is finding its feet, and office space—at least in its traditional form—will need to reinvent itself to stay relevant.
