South African Real Estate Investment Review and Outlook 2021/22

This report reviews commercial property investment activity in South Africa. The report is focused on deal flows in the 2021 calendar year and compares deal flow in 2021 to the previous four years spanning 2017 up to 2020

March 30, 2022
  • Pepler Sandri
  • Wayne Godwin
  • Fabio Nava
  • Mieke Purnell

This report reviews commercial property investment activity in South Africa. Primary sources of information utilised include Real Capital Analytics, Capital Market Analytics, Stock Exchange News Service, REIT annual financial statements and presentations, and other government publications. Reporting is focused on deal flow in the 2021 calendar year and compares deal flow in 2021 to deal flow over the previous four years spanning 2017 up to 2020.

The COVID-19 pandemic has resulted in a severe economic downturn globally, South Africa included. The resultant impact on virtually all sectors of the local property market has been unabated, with certain sectors faring worse than others. Notwithstanding this, debt capital has become more affordable than ever, with lending rates dropping to historically low levels in recent times. Along with discounted asset prices, this has led to an ideal investment climate for investors who predict a medium to long term recovery.

Deal flow value across the office and industrial sectors declined in comparison to 2020, with some reprieve in 2021 attributed to retail and more so to ‘alternative and living’ property types. Filling stations emerged as a growing alternative asset class in 2021, and hotel sales picked up. In 2021 retail and alternative property types accounted for over 66% of deal flow by value, compared to only ±43% in 2020.

Annual economic growth trends are forecast to stabilise to historic levels as extraordinary stimulus winds down. Interest rates locally and globally are starting to increase; however, the expectation remains that lending rates will remain below levels seen before the global financial crisis. The green shoots of growing investor appetite are emerging, and 2022 is set to be a strong year from an investment perspective, with some major deals being negotiated at present.

The demand for increased flexibility will outlive the pandemic, and hence landlords will need to adapt assets and portfolios to accommodate and provide experiential, healthy, sustainable, and tech-enabled offices. This creates new opportunities for investors and developers.

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