This year has brought new optimism to South Africa’s commercial property industry. (Murat Özgür Güvendik/Getty Images)
South Africa’s largest landlord, Growthpoint Properties, and specialist private developer Tricolt recently announced they would co-develop the Olympus development in Sandton, which will have more than 400 apartments and an estimated project cost of over R2 billion.
The penthouse price tags in this twin-tower mixed-use development, which is just across the road from Discovery’s head office, range between R14.25 million and R100 million.
Sandton is the commercial centre of Johannesburg and perhaps the epicentre of African business, which has been built over decades.
The node includes the Sandton City shopping centre complex, the LXX shopping centre and numerous high-end office buildings such as Investec, Sasol and the aforementioned Discovery. It is also home to the Leonardo tower, the country’s highest building at 234m. There was a stage where the Leonardo also boasted a rooftop penthouse for sale for R250 million.
But to develop only in Sandton is to miss a trick and not the rest of Gauteng, the commercial engine of South Africa.
While much of Cape Town and suburbs in the north of the Western Cape and Boland enjoy unprecedented development, and Durban North in KwaZulu-Natal garners attention, Johannesburg needs more tender love and care. At this point it remains the country’s commercial centre.
Greater Johannesburg, including the city and its surrounding suburbs, has a population of about 6.5 million people. Gauteng, the smallest province in the country, has a population of close to 17 million compared with the Western Cape’s 7.5 million.
Many people are moving to Johannesburg from other African countries in search of work. This creates a demand for office, industrial and residential development in the City of Gold.
This year has brought new optimism to South Africa’s commercial property industry. The formation of the government of national unity following the mid-year national election and the onset of a cutting cycle in interest rates have created positive sentiment around commercial property. We also have a more stable electricity supply, with limited load-shedding in 2024.
This has shown up in how listed property companies’ share prices have rallied. Listed real estate investment trusts (Reits) delivered a total return of 34% up to the beginning of December, including share price and dividend growth. In comparison, the broader equity market has returned 15.9%, while South African bonds have gained 16.7%.
There is increased market activity, which is prompting new development in certain business nodes of the country.
Surely this should encourage bold developers to create projects in nodes that are not Sandton? The likes of Rosebank, albeit small, have seen infrastructure upgrades and loads of investment. Waterfall, which is enjoying hefty investment from landlord Attacq and the Public Investment Corporation, and Bedfordview spring to mind. These areas are experiencing growth and development as somewhat of a spillover effect from the investments that are concentrated in Sandton.
Developers need to create amenities near Johannesburg’s airport on the East Rand. But what about Roodepoort and Krugersdorp on the West Rand? Both areas are attracting young families, and there must be demand for new housing developments as well as suburban-style office nodes.
While many small businesses and young professionals may choose to work from home, numerous companies have opted to send their staff back to the office. This includes tech hubs and call centres, which can be accommodated in the west. The area also includes high-quality hospitals such as Life Healthcare in Wilgeheuwel.
We also cannot disregard the South of Johannesburg, which houses some of Gauteng’s wealthier self-made business owners. These individuals started in blue-collar jobs and then grew their own businesses, selling machine parts, used cars, piping, storage and industrial space.
If South Africa needs to grow at 3% or more to start solving our unemployment problem, then Johannesburg needs to thrive. And with an unemployment rate of close to 33%, we need to prioritise job creation.
Estienne de Klerk, chairperson of the SA Reit Association and Growthpoint Properties South African chief executive said: “In 2024, we have seen notable improvements in key property performance indicators, signalling strong investment potential and supporting expectations for future net rental growth. The anticipation of additional interest rate cuts has further bolstered investor confidence and sentiment, creating a positive outlook for the sector as we head into 2025.
“However, the cumulative 50 basis point rate cut so far is not a panacea — it is essential for stimulating market demand and activity, as well as supporting growth in company earnings. While not immediate, additional rate cuts will support Reits in raising capital, refinancing maturing loans, and acquiring new assets.”
De Klerk said that sentiment in the office sector has strengthened, evidenced by a surge in space inquiries and a decline in vacancies. In coastal regions, demand is now outpacing supply in certain areas as more people return to the office. But oversupply still exists in Gauteng, mostly in established office nodes.
Meanwhile, the retail sector is growing. De Klerk expects to see better trading densities and rental growth in 2025 as consumer sentiment improves. The industrial property sector continues to outperform, driven by strong demand, limited supply and rising construction costs, all of which are fuelling rental growth. This trend is set to continue into 2025, he said.
It’s time for the private and public sectors to invest in infrastructure in potential nodes rather than focusing on long-established places like Sandton. Not everything has to be high-rise, fancy and expensive. Sandton could also be reaching a tipping point when it comes to the saturation of luxury developments. We can shift the focus more towards affordability and accessibility.
Sandton is a competitive and prime investment location. But its surrounding areas hold significant potential, particularly in terms of housing. Time to capture new market segments as well as emerging markets. There is a high demand for affordable rental rates and sale prices when it comes to accommodation. People require accessible housing options that are close to their workplaces and shopping areas.
Small-scale developers who invest in these promising areas will play a crucial role in addressing the affordable housing crisis. The high growth rates in the surrounding areas of Sandton are gold-mine opportunities for developers.
Ask Ash is a column that examines South Africa’s property, architecture and living spaces. Continue the conversation with her on email ([email protected]) and X (@askashbroker).