Real estate firm Cushman & Wakefield | Broll is expecting an increase in office real estate transactions, triggered by more established hybrid work policies, evolving tenant-focused office designs and the re-emergence of new developments in select locations.
The firm’s prediction suggests 2025 will be a pivotal year for SA’s real estate market, marking the end of a prolonged “tenant-market” cycle. As property demand and supply dynamics evolve, the balance is shifting in favour of landlords.
A tenant-market cycle refers to a phase in the real estate market in which rental prices tend to drop and vacancy rates rise, giving tenants more leverage in negotiations.
“In addition, a key factor for the office sector is the increased clarity about the changing nature of work, a dynamic to which many businesses have now found ways to adapt and settle into new operational models,” the firm said.
These factors are enabling a favourable environment for corporate real estate strategies, boosting confident decision-making and the appeal of real estate investments, despite challenges such as sluggish GDP growth.
In December, SA Reit Association and Growthpoint CEO Estienne de Klerk noted a boost in office sector sentiment, with rising space inquiries and declining vacancies. Demand in coastal regions outpaced supply as more people returned to the office, though Gauteng remained oversupplied.
Whether it is listed or unlisted property companies, dealmaker in the Cushman & Wakefield | Broll Capital Markets division, Thabo Mofokeng, said 2025 would be a turning point for the property sector as strategic portfolio rebalancing is in the spotlight due to major players offloading noncore assets, recycling capital and strengthening their balance sheets to focus on core strategies.
As interest rates potentially decrease, the appetite for deal flow is set to rise, which is a long-awaited and an exciting development.
— Thabo Mofokeng
Dealmaker in the Cushman & Wakefield | Broll Capital Markets division
The shift is driven by stretched loan-to-value ratios (LTVs) of listed and unlisted property funds, still relatively high interest rates and compressed ebitda (earnings before interest, taxes, depreciation and amortisation) margins, said Mofokeng.
“Despite the real possibility of further interest rate cuts, these factors are prompting a firm focus on, and even re-evaluation of, investment strategies, leading to a clean-out of nonstrategic real estate assets from portfolios. This trend is expected to spur opportunistic bargain hunting from buyers with strong liquidity profiles. As interest rates potentially decrease, the appetite for deal flow is set to rise, which is a long-awaited and an exciting development,” said Mofokeng.
However, the gap between buyer and seller expectations could pose a challenge because sellers are asking for premiums above book value which may reduce buyer interest, especially among those looking to maximise the value of their investments, he said.
To address this Mofokeng noted it was crucial to identify vendors with strong liquidity, equity and balance sheets, who are in a position to negotiate favourable pricing.
“It’s about seeing what others can’t, playing in spaces that are not obvious to the rest of the crowd and exploring opportunities that others might overlook.”
Meanwhile, the firm’s MD of transaction services, Calvin Crick, said the positive sentiment would lead to reduced office vacancies. Employee office occupancy rates have increased but are still lower than they were five years ago.
“The need to compete with the flexible nature of work-from-home presents challenges in retaining talent. To address this, companies must create enticing office spaces and align them with organisational needs, ensuring roles that require in-office presence are well supported,” said Crick.
Cushman & Wakefield | Broll transaction services representative Angus Murray said that while it might be early to see definitive evidence of the shift in office demand-supply dynamics, numerous signs suggest its emergence.
“Looking at sector fundamentals, the return to office and evolving workplace designs that support the office experience are factors driving office demand. At an economic level, SA’s improved political stability, the suspension of load-shedding and lower interest rates are providing a supportive environment and the clarity needed for businesses to advance real estate strategies,” Murray said.
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