Despite elevated inflation and interest rates, Cape Town continues to experience high demand for commercial property driven by limited supply of stock and foreign investments.
Ongoing semigration — the movement of people from one city or province to another — continues to drive demand for commercial and residential property.
“Cape Town is one of the few areas that still offers strong rental growth along with rising property valuations and capital growth on the properties where many other regions have seen flat capital growth in asset pricing,” said Brett Pozniak, a business development executive at Aucor Cape Town.
Pozniak said the market in Cape Town was tightly held, and when premium assets came into the market, they were quickly snapped up.
He said the industrial property market was strong, especially in the Paarden Island and Montague Gardens areas. In Paarden Island, for example, a property recently fetched a high of about R10,000/m2 — which is unheard of in other areas.
Demand continues to outstrip supply in the Western Cape localities including Epping, Parrow, Goodwood, Airport Industrial, Paarl, Stellenbosch, Industria and Belville.
“Limited supply of available industrial stock in these areas is driving up pricing. While yields are under pressure due to rising interest rates, many of these areas continue to offer capital growth over time and rising rental rates due to higher demand,” he said.
Pozniak said smaller industrial units generally fetched higher rentals while a good spread of tenants ensured a good through rate on the asset overall, ensuring high occupancy levels and above-average rental rates across the assets.
He said at auctions, purchasers pay between R4,000/m2 and R5,000m2 for high-quality industrial assets, with certain areas closer to the CBD achieving north of R8,000/m2.
Multi-tenanted properties offer a diversified income as landlords are guaranteed income across a wider spectrum of tenants. This also provides a stronger and more secure yield, as landlords are less reliant on a single tenant for their yield on the property, said Pozniak.
Inospace CEO Rael Levitt said in Cape Town and Johannesburg, there was growing demand for smaller industrial spaces and on-demand warehousing from tenants wanting to secure space to suit their immediate needs.
The company, which owns and manages serviced last-mile logistics parks or small logistics servicing small and medium enterprises (SMEs) in Cape Town and Johannesburg, acquires old industrial buildings and optimises the assets to accommodate numerous small users.
Due to tight supply of new stock in Cape Town, occupancies are high along with rental growth.
“We saw a 12% uptick in rental growth in 2022, but with rising interest rates — though growth is likely to remain in double digits — this would be slightly muted,” Levitt said.
Though the office property sector is still under pressure with oversupply, in Cape Town, the market has bounced back with certain demand in some localities reaching pre-pandemic levels, said Brent Townes, commercial property COO for Lew Geffen Sotheby’s International Realty Cape Town.
Townes said freehold office space has been the top seller in four of their freehold sales areas including Bellville, the CBD, Goodwood and Parow.
“It is encouraging seeing office space back in the running and leading Cape Town’s commercial property sector resurgence,” said Townes.
A-grade freehold offices are top sellers in Bellville and the CBD, while B-grade in Goodwood and Parow are top sellers.
In Century City and the CBD, A-grade sectional title offices are top sellers with B-grade in Milnerton, Bellville and Salt River.
“Local occupiers looking for an iteration of locality, accessibility and reasonable rentals rates drive demand for office space,” said Townes.
He said business and individuals moving into the Western Cape mainly from Gauteng and KwaZulu-Natal with a few from the Eastern Cape continue to drive demand for commercial property in the region.
Townes said demand for commercial property in Cape Town would continue for several reasons. The area rates highly for service delivery, is well governed, and experiences less severe load-shedding — with the local government on track with its own power generation.
Within their portfolio, retail was the second top selling property sector followed by industrial property — especially in areas like Airport Industria a popular industrial node and blocks of flats.
From March 2022 to February 2023, the company saw the value of registrations for office, industrial and retail freehold properties increase 10%, with average values remaining constant while transaction values rose 10%.
Unit sales of sectional title properties rose 33% but average values decreased 18% with transaction values rising 10%.
Townes said the decrease in transaction values for sectional title sales could be due to changes in the types of properties being sold, shifts in market demand and changes in the local economy.
He said as budgets tightened, one of the drivers was to focus on a lower cost of acquisition [overall transaction values], and specific localities as certain areas remain in demand and commanding higher average rate per square metre.
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