John Jack
Galetti Corporate Real Estate
CEO
Speculation about the upcoming interest rate announcement by the South African Reserve Bank (SARB) suggests a 25 basis point rate reduction – a small yet significant change that John Jack, CEO of Galetti Corporate Real Estate, believes will help accelerate economic growth in 2025.
“There is strong optimism about a 25 basis point reduction at the end of this month, bringing the total reduction to 75 basis points and leaving room for a further rate cut in 2025.”
Echoing this sentiment are prominent local CEOs from Nedbank, MTN, Pam Golding, and Woolworths, who have each expressed an optimistic view on the country’s prospects in 2025, citing it as a year of ‘economic stability and recovery’.
“There is no denying that there is still a lot of work to be done, but inflation is tracking lower than anticipated, and there is a strong sense of confidence in the market,” adds Jack.
The impact of interest rates transcends local homes and business owners as a key contributor to the country’s economic growth outlook, which is currently tracking at 1.5% for 2025.
“As an emerging economy, 1.5% is a relatively conservative number, but it is still a vast improvement on the 0.2% achieved in 2019 – the last pre-pandemic year, as a prime example.”
However, this year’s GDP forecast may be underestimated, with Jack adding that there could be greater potential for growth on the horizon. “We recently hosted a conversation with Chief Investment Strategist at Investec, Chris Holdsworth, who highlighted further potential for growth, largely driven by improved investor confidence.”
Holdsworth highlighted 1999 to 2003 in the discussion as the years in which the country experienced a growth rate of 3.5% under the Thabo Mbeki administration. “This was the only administration where the country saw a combination of flat to weak commodity prices globally but business prices picking up, and much the same can be said for South Africa under today’s GNU administration.”
Jack unpacks what a 75-basis points reduction could mean for the commercial property sector:
Debt Affordability
A reduction in interest rates lowers the cost of borrowing – a boon for property developers and investors.
“A quick succession of rate reductions offers landlords some breathing room, improving their cash flow, rental yields and profitability.”
More Investment Activity
Lower interest rates make alternative investments – such as bonds and savings accounts – less attractive due to reduced yields.
“Beyond investment into existing properties, rate cuts and improved investor confidence could be the accelerator the construction industry needs to kickstart again.”
Property Valuations
Interest rates and capitalisation rates (cap rates) share a strong connection. When interest rates are reduced, cap rates compress, resulting in higher property valuations.
“Property owners wanting to sell or refinance their assets will benefit from improved valuations that can potentially unlock additional equity and deliver premium prices.”
Improved Demand Across All Asset Classes
“The impact of a rate reduction (coupled with improved investor confidence) will generate higher demand for office, industrial and retail properties,” says Jack. “Retail, in particular, is set to benefit as consumer spending increases due to more cash flow and less debt.”
Regional Performance Boost
While the Western Cape is undoubtedly the blueprint for economic growth in the country, Jack has noted an uptick in demand for commercial property in Umhlanga. “Mirroring demand in Cape Town, there’s virtually no office space left in Umhlanga – a good sign of growth and confidence in the KZN market.”
He believes that further public-private partnerships could get Gauteng to a place of recovery and, ultimately, growth. “The country’s economic hub is long overdue for an overhaul, and we believe this is the year for it.”
With this in mind, Jack adds that the long-term benefits hinge on addressing ongoing structural and political challenges. “Service delivery, crime and unemployment are just some of the factors that must be addressed to deliver long-term, sustainable growth.”
The market anticipates another rate cut for the year ahead, bringing the total rate reduction to 100 basis points. “This will aid the momentum that is currently building and will be a pivotal turning point for the market”.