Will Harris
Gmaven
CEO
Despite the COVID-19 pandemic, inflation-fighting interest rates, and slow economic growth, South Africa boasts the largest commercial real estate (CRE) industry in Africa. If recent reforms persist, interest rates continue to lower, and key metros stabilise, a long-awaited commercial property boom could follow.
According to Gmaven, a provider of real estate software and data services, the value of SA’s CRE market reached R1.92-trillion as of 30 June 2023, reflecting a significant 48% increase from the R1.3-trillion recorded in 2015 when the Property Sector Charter Council first released official data.
An exchange rate of R18 to the dollar translates to nearly $110bn. With an estimated population of 62 million, the per capita value stands at $1,800. This is far lower than the UK, with a similar-sized population of 67 million. The UK’s per capita value of CRE is $26,600 – from a CRE market valued at $1.78 trillion.
“This new data underscores the resilience of South Africa’s commercial real estate sector (particularly the industrial and retail categories) and highlights opportunities for investment, future growth and strategic decision-making,” said Will Harris, CEO of Gmaven.
Gmaven’s data reveals that listed property owners hold R400bn of the R1.92-trillion CRE value. According to the latest reported numbers, South Africa’s largest listed property fund, Growthpoint Properties, reported assets valued at R70.5bn, followed closely by Redefine Properties at R64.7bn.
Excluding the listed sector, the bulk of the market value is held by owner-occupiers, private owners, and pension and life funds. High-density metros like Gauteng and the Western Cape account for the largest share of the market, while provinces such as Mpumalanga and Limpopo, with lower per capita values due to less formal urbanisation, have experienced recent growth in retail and present future opportunities.
¹ Source: Statistics South Africa/ Census Data
Harris said the R1.92-trillion market value is derived from the annual financial statements of 213 South African municipalities. This value is likely understated. It excludes state—and municipal-owned commercial properties, as well as hospitals, hotels, schools, and multi-dwelling residential properties. Further, municipal commercial property values often fall below market value.
“Municipalities rely heavily on property rates and taxes for revenue, making them highly motivated to ensure accurate property values. Simultaneously, property owners are incentivised to keep those values in check, as inflated assessments lead to higher tax bills. This dynamic fosters a natural accuracy in the data – data that reflects the entire commercial property landscape of the country.”
Municipalities and the competition for “customers”
Harris said the value of CRE properties, according to municipalities, may be pushed up as they seek to extract more from property owners, placing pressure on property valuers to value higher. However, an increase in property value often represents only a paper gain, translating into higher rates and taxes for property owners. To avoid discouraging investment, any rise in rates and taxes must be accompanied by improved service delivery.
As the Western Cape’s growth and the relative value erosion in other metropoles have demonstrated, property values follow the laws of demand and supply. Improved local government service delivery attracts both resident and business rental payers. Property investors follow suit as capital flows into these areas, driving up property values.
However, the inter-country migration mentioned above is largely a zero-sum value game. With a fixed number of businesses and GDP, value shifts between regions rather than driving an overall increase in the country’s total property value.
How to increase property value?
The value of commercial properties can fluctuate significantly, even without new construction, driven by property-specific factors and broader economic and market conditions.
Macro factors that will drive increases in the total value of SA commercial property are lowered interest rates and the economic growth potential of the Government of National Unity (GNU) coming to fruition. The GNU promises to improve local government services and infrastructure, policing and security, foreign policy, the legal system, clarity on property ownership rights, and overall investor sentiment regarding South Africa.
Micro, property-specific factors dictating commercial property values are driven by their income potential. Properties that generate higher rental income or maintain lower vacancy rates are valued higher. Innovative revenue streams—such as landlords installing solar panels and selling electricity generated—can further enhance income and, consequently, property value.
Operational costs, including rates, security, and property management, are vital in determining overall value. When these costs decrease, property profitability rises, leading to an increase in property value.
The importance of understanding commercial real estate value
Grasping the value of South Africa’s commercial real estate market is essential for various economic decisions, from infrastructure spending to rental projections, taxation, and energy consumption.
Harris said understanding the true value of South Africa’s commercial real estate market is essential for businesses, policymakers, and investors. This value transcends mere statistics.
“By gaining a comprehensive understanding of the R1.92-trillion CRE market, businesses can make more informed decisions, municipalities can optimise revenue management, and major economic actors can strategise for sustainable growth,” said Harris.
To effectively analyse CRE market value, it is essential to consider properties by grade (Premium, A, B, or C-grade), category (office, industrial, retail and other), and size or gross lettable area (GLA).
Harris said while obtaining specific data on various commercial property categories and grades can be challenging, these metrics represent the next frontier of insight for South Africa’s commercial property market.
“At Gmaven, we are making strides toward unlocking this data, which will open up a wealth of new opportunities within the commercial property sector in South Africa,” he added.