The latest report on 2023's property scene.
Category News
According to the Q4 of 2022's Rode's Property Report, the market is marking its time. Growth has stagnated (but not decreased) in almost every region outside of the Western Cape. By segmenting each section into three categories (Residential, Commercial, And Industrial), we break down the trends and analyse possible changes for 2023 and the future.
Residential Sector
The major takeaway for the residential property scene indicates a stagnation in growth. This is mainly due to increased cost-of-living standards and rising interest rates. Based on data captured by FNB, average property prices grew by 3.2% compared to the previous year. At the same time, the Lightstone index painted an even lower margin of 2.7% from November and October 2022.
On average, housing prices took a sharp descent, with the average inflation rate middling at 6.8% during this period. While this is below the 2021 margin, other sectors, such as the flat rental scene, consistently performed better in 2022. Vacancy rates are declining while rental rates are increasing.
The Western Cape remains the standard bearer for growth, with vacancy rates at 3.3%. In contrast, Gauteng, while on the uptick, remains above the national average at 8.2%. Taking a holistic approach, rentals and house prices are declining nationwide.
Commercial Sector
On average, the commercial sector showed signs of improvement near the end of 2022. But the biggest challenge remains the office space market due to abundant availability. For context, grade A+, A, and B offices have an average vacancy rate of 14%. While still high, it decreased from the same period in 2021.
Rental growth has increased, yet investors are encouraged not to become overly optimistic as slow economic growth and the work-from-home trend show no signs of dissipation. To this end, rentals in this sector have declined by a significant 7%. Adjusting for building-cost inflation, this figure is now closer to 11%.
Once again, Cape Town and the Western Cape outperform in this sector. Rental demand has increased by 16%, outpacing all other regions by a landslide.
Industrial Sector
On a more positive note, the Industrial Sector is in the best position. National nominal rentals are rising by an average of 5,3% which is stark growth compared to 2021's 2,2%. Again, investors need to remain levelheaded as inflation adjustments after building costs remain high.
The major stimulating factor remains a low vacancy rate (3,8%), especially regarding warehousing and storage facilities linked to logistics. Strong online retail sales ensure a continual push in production and product consumption.
It comes as no surprise that Cape Town, once again, dominates this sector as well. Year on year, rental rates for prime space have risen by a favourable 6,3%.
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Author: Bryce Anderson