The Strong Fundamentals Supporting South African Property's Recovery

South African commercial property has now delivered four consecutive years of positive capital growth, a milestone that would have seemed ambitious during the uncertainty that followed the pandemic.

According to the MSCI South Africa Property Index, sponsored by Absa, the sector generated a total return of 12% in the 12 months to December 2025, its strongest performance since 2018. Income returns were robust at 8.5%, above the 10-year average, while capital growth lifted property values back to levels last seen a decade ago. For the second consecutive year, the South African Property Index also achieved the highest total return in local currency terms across the MSCI global index constituents.

The sustained positive performance of commercial property in South Africa is reflective of a more constructive macroeconomic backdrop and stable to improving property fundamentals. Perhaps more importantly, those improvements are no longer isolated to a single part of the market, but can be observed across multiple sectors.

Representing 61% of the MSCI index by value, the retail sector, for example, delivered a total return of 12.7% in 2025, up from 12% the year before. Township and rural retail also outperformed, generating returns of 17% and 17.8% respectively. These outcomes have unfolded against a backdrop of moderating inflation and lower interest rates, both of which have provided support to consumer spending. The South African Property Owners Association’s (SAPOA's) 4Q25 Retail Trends Report showed trading density growth of 3.9% year-on-year, lower than earlier in the year but broadly tracking inflation, while tenant demand for quality retail space was still healthy. Vacancy rates improved to 4.5% and tenant affordability, measured through gross rent-to-sales ratios, was stable at 6.8%.

In the industrial property sector, demand for logistics facilities, tenant-driven developments and persistently low vacancies underpinned activity throughout 2025. Accounting for 11% of the MSCI index, the sector once again delivered the highest total return among the major property classes at 13.4%. Capital growth moderated relative to 2024, yet income returns were stable. In many respects, industrial remains the sector where the relationship between demand and supply appears most favourable, with available space constrained by tight vacancies while rentals continue to grow.

Meanwhile, office property has long been viewed as the sector facing the greatest structural challenges, which is why its recent performance may be among the more significant developments in the market.

The sector, which comprises 18% of the MSCI index, delivered a total return of 9.7% in 2025 compared with 9.4% in the previous year, while both income returns and capital growth improved year-on-year. Most encouraging has been the improvement in vacancies. According to SAPOA's 4Q25 Office Vacancy Report, the national office vacancy rate declined from 15.8% in 2024 to 12.8% in 2025. Yet the office recovery also highlights an important feature of the current property cycle: performance is becoming increasingly differentiated. Coastal markets such as Cape Town and Umhlanga are still outperforming the Johannesburg metro, while modern, well-positioned precincts are attracting demand that older assets in the same nodes struggle to replicate.

These results suggest that the sector's recent performance is being supported by sound fundamentals: retail is benefiting from healthier consumer conditions, industrial is enjoying strong structural demand, and office vacancies are moving in the right direction. None of this removes the challenges facing the sector, nor does it suggest that all property assets will perform equally well. What it does indicate is that the foundations supporting commercial property have become more constructive than they were several years ago.

Ongoing geopolitical tensions are expected to create inflationary pressures and uncertainty around the future path of policy rates, both locally and globally. Those dynamics have implications for economic growth and, by extension, for tenants, landlords and capital providers alike. For now, however, commercial property finds itself in a stronger position from which to absorb those pressures. After four consecutive years of capital growth and the strongest total return since 2018, the conversation has shifted from whether recovery is possible to how sustainable it proves to be.