South Africa’s Property Market Struggles Despite Year-End Improvements

  • Persistent Struggles in South Africa's Property Market: Despite some improvements towards the end of 2023, the property market in South Africa faces ongoing challenges, particularly evident in declining sales and persistently high cap rates across office, industrial, and retail sectors.
  • Retail Sector Remains Under Pressure: The retail segment endured a tough year in 2023, with negative sales post-inflation adjustment, elevated mall vacancy rates exceeding pre-pandemic levels, and a significant drop in real retail sales, indicating the sector's weakened performance.
  • Cautionary Outlook for 2024: Economic factors such as high inflation and interest rates curtailed consumer purchasing power, hinting at potential underwhelming retail sales volumes in 2024. Despite some temporary improvements in retailer satisfaction, the overall business conditions remain challenging for the trade sector in the coming months.
Property Market


South Africa’s real estate sector faces an uphill battle amid declining sales, particularly in shopping centers, revealing a sustained struggle in the market. Rode’s latest cap rate survey for Q4 2023 unveils the continued strain on the property market, particularly in office, industrial, and retail sectors, where cap rates persist above pre-Covid levels.

Cap rates, a crucial metric indicating investment risk by dividing a property’s net operating income by its market value, remained high in 2023, signaling a challenging investment landscape. Rode reported, “The retail property market faced hardships throughout 2023, witnessing negative sales after adjusting for inflation. Mall vacancy rates also exceeded pre-pandemic levels.”

Despite this gloomy assessment, there is a glimmer of hope as the year drew to a close. The latter part of 2023 exhibited some improvement in cap rates, albeit after consecutive quarters of higher rates.

Regional shopping centers, which comprise a significant proportion of malls, experienced a slight drop in cap rates from 9.7% in Q3 to 9.5% in Q4, albeit significantly higher than the 2022 rate of 8.9%. This downturn was a result of the weaker performance of the retail market in 2023, indicated by Stats SA data showing a 1.5% drop in real retail sales during the first ten months of the year.

Mall vacancy rates, while showing some improvement from 5.6% in Q2 to 5.1% in Q3, still surpassed pre-pandemic levels of 4%, underscoring the persistent challenges faced by the retail property market.

Notably, despite lower cap rates in major cities in Q4, national-weighted regional center cap rates remained higher than those observed in 2019 and 2022, further highlighting the market’s sustained struggle.

Analyzing on a national scale, smaller communities and neighborhood centers exhibited average cap rates of 10.2% and 10.7%, respectively, in Q4, representing a slight improvement from Q3 2023, though cautioning against reading too much into these minor fluctuations.

The Bureau for Economic Research (BER) Retail survey reflected a shift in retailer sentiment, with satisfaction regarding prevailing business conditions rising from 32 in Q3 to 47 in Q4—the highest reading since Q3 2022. However, this positivity did not stem from sales growth but rather from improved profitability and general business conditions, buoyed by a temporary respite from load shedding.

Yet, economists from BER painted a cautionary picture for the upcoming year. Craig Lemboe, BER’s deputy director, highlighted, “High inflation and interest rates have curtailed consumer purchasing power, likely resulting in underwhelming retail sales volumes compared to Q4 2023.”

The outlook remains challenging for the trade sector in the initial half of 2024, with persistent cost-of-living pressures expected to dampen business conditions.

The South African property market’s resilience will be tested amid these persistent challenges, despite some glimpses of improvement towards the end of 2023. Stakeholders must navigate these turbulent waters and strategize for a volatile market in the foreseeable future.

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